Public Expenditure

HC Deb 21 December 1999 vol 341 cc682-776 1.22 pm

The Chief Secretary to the Treasury (Mr. Andrew Smith)

I beg to move, That this House welcomes the action taken by this Government to build a platform of stability for the British economy, in contrast to the boom and bust of the past; welcomes the new monetary policy framework put in place by this Government, which is delivering stability and steady growth; notes that the Conservative Party opposes Bank of England independence; welcomes the new public spending framework which is delivering an additional £40 billion for health and education; notes that the Conservative Party is opposed to this extra investment; welcomes the fact that this Government is doubling public sector net investment after so many years of neglect; welcomes this Government's programme of reform in the public services and thanks public and voluntary sector workers for their contribution to delivering strong public services for all.

It will not have escaped your attention, Madam Speaker, that despite the fact that the Opposition were keen to have this debate in Government time, only four Conservative Back Benchers have turned up. That speaks volumes for their lack of confidence in the positions they take on the issue.

This is the last major debate to be held on the Floor of the House this century and we have an opportunity to discuss the Government's modernisation of our public finances and public services. However, we should also take a look at the past couple of decades and the Conservatives' record on public expenditure. When we came to office we inherited not some golden economic legacy, as Conservative Members would have us believe, but an economy flawed by serious and fundamental weaknesses.

Britain was set to repeat the same old cycle of Tory boom and bust. Inflation was set to rise sharply above target, borrowing had risen to £28 billion and the national debt had doubled. Just servicing that debt cost the British taxpayer some £25 billion every year, or more than is spent on schools, or on housing and law and order put together. Over the previous economic cycle, Tory budget deficits totalled a staggering £149 billion. The last Tory Government also managed to deliver the highest level of public sector borrowing since the second world war—some £50 billion, or 8 per cent. of gross domestic product.

Mr. Andrew Tyrie (Chichester)

I have made this point before in the House, but the right hon. Gentleman is new to his job and obviously does not yet know the facts. The Conservative Government were just about the only Government in the world during their nearly 20 years of office to reduce the debt stock as a proportion of GDP. Every other country in the Organisation for Economic Co-operation and Development saw an increase in its debt stock. The Chief Secretary's remarks merely reflect one point in the business cycle—a cycle that he claims he will abolish.

Mr. Smith

It may be one mere point to the hon. Gentleman, but that £25 billion could and should have been spent on public services. Our first priority was to deliver a platform of economic stability and to leave behind the boom and bust of the past.

Mr. Geraint Davies (Croydon, Central)

My right hon. Friend might be interested to know that the chief economist of the National Westminster bank recently told me that interest rates in the previous economic cycle ranged between 7 and 15 per cent., but in this cycle the range is between 5 and 7 per cent. That means that the peak under this Government is the same as the trough under the previous Government. Does not that underline the fact that we have got rid of boom-and-bust economics, partly through giving independence to the Bank of England, and partly through the prudence of the Treasury team?

Mr. Smith

My hon. Friend is absolutely right. Securing economic stability is the essential precondition to delivering the high growth and employment that the Government want to achieve. As my hon. Friend noted, we took courageous steps: we put in place a new, modern monetary policy framework and we made the Bank of England operationally independent, thus ensuring that decisions on interest rates are taken in the best long-term interests of the economy, not for short-term political reasons. We also set a clearly defined and symmetrical inflation target.

I remind the House that the Conservative party remains opposed to the Government's monetary policy framework and Bank of England independence. The Conservatives threaten to take Britain back to the bad old days of Tory boom and bust.

We have also put in place an equally coherent and modern fiscal and public spending framework, based on clear fiscal rules. Our first and golden rule is that we balance the budget over the cycle. Secondly, our sustainable investment rule means that we borrow only for investment and that, as we do so, debt is held to a prudent and stable level.

Mr. Oliver Letwin (West Dorset)

Will the Chief Secretary clarify for me a point of information that I find continually interesting? He makes a measurement across an economic cycle: where are we on that cycle now, and when will it end?

Mr. Smith

The calculation of where we are in the cycle is performed against a baseline, and the Government's figures are independently audited by the National Audit Office. That is part of the transparent and accountable fiscal framework that the Government introduced to replace the irresponsibility and boom and bust of the Tory years.

Our policy making is transparent to an unparalleled degree. In monetary policy, the Bank of England Monetary Policy Committee operates an open system of decision taking, publishing minutes and votes and reporting in full to Parliament. The same openness and disclosure are evident in fiscal policy. Key fiscal assumptions are independently audited, and far more information than ever before is published to ensure properly informed debate and scrutiny.

That rigorous adherence to the new fiscal framework is delivering significant results already. As a result of our prudent and cautious assumptions, which are audited by the National Audit Office, we are firmly on course to balance the budget over the cycle. We are therefore firmly on track to meeting the first of our fiscal rules, which I earlier termed the golden rule.

The Government believe that the second fiscal rule—the sustainable investment rule—can also be realised. Other things being equal, we believe it desirable to reduce the debt ratio to below 40 per cent. of gross domestic product, so that debt is at a sustainable and prudent level.

National debt doubled under the previous Government. By contrast, over the past three years, debt as a share of national income has fallen from 44 per cent. to 42 per cent. It is estimated that it will fall to 38.2 per cent. at the end of this financial year, and to 37 per cent. in the following year. Over the economic cycle, therefore, the Government are on course to keep debt below 40 per cent. of our national income, so we are firmly on track to meet the second fiscal rule, too.

Mr. Nick St. Aubyn (Guildford)

In this spirit of transparency over fiscal matters, will the Chief Secretary confirm that the burden of taxation has transparently risen by 2 per cent. of gross domestic product since his party came to power?

Mr. Smith

I took Conservative Members through this last Thursday. We can go through it again, but I will not allow them to make the charge that the tax burden is rising. Let me give the figures again for tax and social security as a share of GDP: last year it was 37.4 per cent., this year it is 37 per cent. and next year it will be 36.8 per cent. The tax rate is falling, not rising.

Mr. Tim Loughton (East Worthing and Shoreham)

If the Minister is so keen to give us these fiddled figures yet again for a two-year period, can he quote a single independent economist who agrees with him that—apparently—the rate of tax as a percentage of GDP will have fallen by the end of this Parliament? Can the right hon. Gentleman name a single economist who agrees with the premise that he is trying to peddle yet again?

Mr. Smith

I know of not one economist, independent or otherwise, who challenges the figures that I have just given—37.4 per cent. last year, 37 per cent. this year, 36.8 per cent. next year.

As a result of falling levels of debt and lower long-term interest rates, interest payments this financial year are projected to be almost £4 billion lower than in the previous year. That money, which is now available for front-line services, would not have been available under the previous Government.

Having come this far, we will not relax our grip. We have a long-term commitment to stability, not just a month-to-month commitment. We will not repeat the mistakes of the late 1980s when the then Chancellor, Nigel Lawson, spent the proceeds of growth before he had earned them. In 1988, he gave away massive tax cuts and two years later plunged Britain into the deepest recession of modern times. The public finances nose-dived out of control.

We will not make the same mistake as that Conservative Government. We will take nothing for granted. We will not spend money that we do not have or have not earned. This commitment to fiscal stability and effective public spending for the long term has been doubly strengthened by our reforms to the public spending framework. Our new three-year spending plans, set out in the comprehensive spending review, give Departments and our public services the certainty and stability they need in order to plan beyond the one-year time horizon.

Mr. Edward Davey (Kingston and Surbiton)

Can the right hon. Gentleman confirm—[Interruption.]

Mr. Deputy Speaker (Mr. Michael Lord)

Order.

Mr. Davey

Can the right hon. Gentleman confirm that those three-year spending plans are set in stone?

Mr. Smith

I am grateful for that question from the Liberal Democrat representative. As I was saying, we have firm fiscal rules, we are not relaxing our grip, and the comprehensive spending review targets stand. That is as clear an answer as the hon. Gentleman could wish for. Through those plans, based on a platform of stability in public finances, we have been able to commit significant extra investment to our key public services at the same time as meeting the tough fiscal rules. That has meant an extra £40 billion over three years for education and health—£40 billion that was opposed by the Conservative party, which described our spending plans as mad, reckless and irresponsible.

Mr. David Ruffley (Bury St. Edmunds)

The Chief Secretary will recall that the Prime Minister addressed the parliamentary Labour party on 7 May 1997 at Church house, saying that he wanted proposals for reducing the social security bills. In the light of that remark, can the right hon. Gentleman explain why social security spending will increase from £97.3 billion last year to £112.3 billion at the end of this Parliament?

Mr. Smith

I was not aware that the hon. Gentleman had been at Church house—perhaps he was anticipating his former colleague, my hon. Friend the Member for Witney (Mr. Woodward).

Mr. Ruffley

Why has it gone up?

Mr. Smith

Judging from the remarks the hon. Gentleman is making from his sedentary position, I cannot judge how far he subscribes to big tent politics, but I shall give him the benefit of the doubt.

At the general election, we promised to cut the costs of economic and social failure. We are doing so. When in Opposition, we were challenged about what we would cut to reduce the deficit. I recall being challenged on that point by the right hon. Member for Wells (Mr. Heathcoat-Amory). We said that we would cut unemployment in order to bring down the deficit, and that is exactly what the Government have done. Some 700,000 more people are in jobs, long-term youth unemployment is down 60 per cent. and the rest of long-term unemployment is down by more than half. As we get people into work, they benefit, their families benefit and—

Mr. Ruffley

Will the Minister give way?

Mr. Smith

I have given way already to the hon. Gentleman, and to just about all of his hon. Friends present in the Chamber. I want to make some progress.

The Conservatives opposed our spending £40 billion on health and education. They said that it was madness, that it was reckless and that it was irresponsible. The record also shows their plans to privatise the health service. The Conservative health spokesman—the hon. Member for Woodspring (Dr. Fox)—has said: We will have to find other ways of getting the treatment required by perhaps having medical insurance. The right hon. Member for Maidstone and The Weald (Miss Widdecombe) is on the record as saying: The problem with the NHS is that we do not charge for much of what we do. The Tory health spokesman talked of Trojan horses—[Interruption.] These are the words of Conservative spokesmen, and no one on the Tory Benches is rising to challenge them. They are offering a Trojan horse for the privatisation of the NHS.

Mr. St. Aubyn

Will the Minister give way?

Mr. Smith

I have already given way to the hon. Gentleman.

Under the previous Government, the increase for the final three years was £10.5 billion. [Interruption.] By contrast, we are delivering an increase in health funding of £21 billion. [Interruption.]

Mr. Deputy Speaker

Order. May we please have an end to comments from a sedentary position from both Front Benches and Back Benches?

Mr. Smith

Thank you, Mr. Deputy Speaker.

In the final three years of the previous Government, growth in education spending was £7 billion. By contrast, we have committed additional education spending of £19 billion. That is what we mean when we say that education is our top priority.

NHS spending rose by an average of just 2.9 per cent. a year during the entire Conservative period in office. The Labour Government will achieve yearly real growth averaging 4.9 per cent. over the comprehensive spending review period. That will help to deliver modernisation of the NHS; the largest hospital building programme in NHS history; fast, modern, convenient services such as NHS Direct—the 24-hour telephone helpline—and NHS Direct online; and improvements to hospitals and general practitioners' premises.

After so many years of neglect, the comprehensive spending review also heralded a doubling of public sector net investment. The rise, by 0.5 per cent. of gross domestic product, in net investment over this Parliament compares with a 1.5 per cent. cut during the final Conservative Parliament. Gross investment will total nearly £30 billion a year by 2001–02, providing new resources for the renewal and modernisation of the UK's infrastructure. On top of that, new money is coming in under the private finance initiative. Since the general election, we have turned the PFI around. We have signed deals worth £5 billion—more in two years than during the whole five years of the last Tory Administration.

The PFI is now working in sectors such as health where it had not worked before. Looking ahead, we expect to sign deals worth more than £11 billion in the next three years in such diverse sectors as schools, hospitals, local authorities, defence and property management. That represents more than 20 per cent. of total net public sector investment over the period.

That is all a significant increase in resources for our front-line public services, but it is all investment for reform. The Government's public service agreements are at the heart of the new approach. Published a year ago, PSAs are a contract with the people, a promise of lasting improvements in Britain's public services. PSAs establish tough, measurable policy and efficiency targets that Government will deliver in exchange for the extra investment that we make. Our extra investment in schools and hospitals—worth £40 billion—must result in £40 billion worth of improvements.

In the next spending review, to be completed next year, we want to go further in ensuring that policies and services are designed and delivered in a more integrated, flexible and customer-centred way, but for that to happen we need to enhance the Government's capabilities for designing and delivering cross-cutting policies and programmes. Problems such as crime and social exclusion cannot be tackled by Departments acting in isolation. Departments need to work with each other to develop coherent and consistent policy and to ensure that it is delivered coherently and consistently.

We must learn to work with others to build a new culture of partnership. We must reach out to service providers in local government, the voluntary sector and the private sector, and we must consult service users themselves. [Laughter.] Conservative Members should not laugh. If they had done a bit more consultation with service users when in government, they would not have left the public services in the mess they were in at the general election.

The cross-cutting reviews that we undertook in the previous comprehensive spending review were successful, bringing forward radical and innovative new approaches—from the national drugs strategy, which is investing an extra £211 million over three years and tackling the causes of drug misuse, to the new sure start programme, which will improve services for young children and families, in which we are investing £450 million over three years.

In next year's spending review, we will build on that success. In consultation with Departments and local government, we have identified 13 cross-cutting reviews to be conducted between now and next summer. The reviews will help us to achieve our goal of reducing child poverty by half by the end of the next decade, on our way to ending child poverty within 20 years.

Already our measures are lifting at least 1.25 million people out of poverty, 800,000 of them children. Not only are we helping children out of poverty at home, but by means of the measures that my right hon. Friend the Chancellor of the Exchequer has announced, we are, through debt relief, tackling poverty in the world's poorest countries.

Our cross-cutting reviews will ensure that every child and every family is given the best opportunities to fulfil their potential. A cross-cutting review of welfare to work will consider how we can move towards employment and opportunity for all. In addition to last year's review of services for children, we have reviews looking at young people at risk and at old people. Just as we promote work for those who can, we will improve security for those who cannot.

To last year's reviews of illegal drugs and the criminal justice system, we have added a new review of crime reduction, exploring radical new options for tackling the causes of crime. We are building on the review of local government finance in the last comprehensive spending review, and have added new reviews that look at service delivery in deprived areas and in the countryside.

We have established a review of science and research to consider how public support for them can better address the needs of the economy at large. Two further reviews will look at cross-cutting issues overseas: how Britain can best contribute to conflict prevention, and how it can help to secure nuclear safety in the former Soviet Union.

For nearly all those reviews, we have nominated a lead Minister and established an interdepartmental team. The reviews will draw on relevant expertise from outside, and within, Whitehall. That approach will produce a modern spending review for a modern Government. In the review, we shall continue to match investment with reform—increasing the amount available for the NHS, for education and for other priorities in our public services.

The Labour Government have made the choices necessary to deliver stable and sustainable public finances. We have been steadfast in our priorities, which are the nation's priorities. As a result of prudence and a commitment to investment in return for reform, a total of £40 billion will be invested in the nation's priorities—health and education. We are a Government committed to adopting new and innovative approaches for service delivery. We are committed to prudence and stability in our public finances. We are committed to public services, not only with value for money but with the highest quality of service, truly fit for the 21st century.

As the Government mark the achievements and the promise of our public services, we record our thanks, and those of the House, for the contribution made by public sector workers. Their commitment makes those services possible. We thank the 140,000 doctors, nurses and ambulance staff, the 50,000 firefighters, the 126,000 police officers and all other workers in councils, utilities and the voluntary and private sector who will be working over this Christmas and on millennium eve. We thank them and wish them a happy new year.

1.47 pm

Mr. David Heathcoat-Amory (Wells)

I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof: notes that, according to Government figures, the burden of taxation has risen from 35.3 per cent. of GDP (1996/97) to 37.4 per cent. by April 1999; condemns this increase in the burden of taxation since the Government took office and the increase in business regulations which has accompanied it; condemns the Government's failure to achieve the promised improvements in public services while at the same time waste in the public sector has increased; and, while welcoming the Government's health and education spending increases, regrets that these have not been accompanied by the promised reform of social security expenditure which is set to rise by more than £30 billion over the next three years.

This is the first occasion on which I have debated with the present Chief Secretary, the right hon. Member for Oxford, East (Mr. Smith); I congratulate him on his appointment to that important post. He is the fourth Chief Secretary since the general election. I hope that he serves for a slightly longer time than his predecessors—although not for too long. The other Chief Secretaries have come

and gone in various circumstances. During their terms, they all created considerable confusion in the public finances. Perhaps each of them tried to apply his own accounting principles—albeit with unhappy results for the rest of us. I hope that the right hon. Gentleman will try to wipe the slate clean and will at least present what is going on in a reasonably coherent way.

Let us start with some common accord, as this is the last debate that will take place in the House this century—indeed, this millennium. I certainly join the right hon. Gentleman in thanking those public sector and other workers who will keep all the services going over the holiday season.

The Conservatives can take pride in the fact that the century now drawing to its close is definitely the Conservative century—one that has witnessed the triumph of free market economics and policies—

Kali Mountford (Colne Valley)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I shall give way to the hon. Lady later.

I can assert, without disagreement from either side of the House, that this century has seen the triumph of market economics and of the economic policies advanced by the Conservative party. That has undoubtedly demonstrated the fact—first stated by Adam smith—that the wealth of any country depends not on its natural resources, its climate or even its political influence in the world, but on the system of voluntary exchange and the market specialisation that flows from that. That system, properly encouraged and regulated, has led to the fantastic increases in the general standard of living, among all our people, that we have witnessed this century.

The same process has also exposed socialism not just as a system that is hopelessly inefficient at generating wealth, but as one that takes away human freedom. It is one of the achievements of this century that it has consigned socialism to the dustbin of history. Now the—[Interruption.] If any spokesmen for socialism are lurking on the Labour Benches, we will be very pleased to hear from them at this belated stage.

Caroline Flint (Don Valley)

I was interested in the right hon. Gentleman's reflection on the Conservative contribution to this century. Is he aware that Winston Churchill was in favour of a minimum wage? Is it not the case that, given the chance, the right hon. Gentleman would abolish the national minimum wage and, in doing so, give 2 million people a pay cut?

Mr. Heathcoat-Amory

None of what the hon. Lady said contradicts the points that I was making. Indeed, she has drawn attention to the fact that the Labour party's contribution to the process has been at best most undistinguished. The Chief Secretary has been in the House for 12 years. Let us not forget that, for the first 10 years, he did his best to hold up the economic reforms that he now regards as essential and to pour sand into the free enterprise machine that he is now proud to inherit.

The hon. Member for Don Valley (Caroline Flint) has not been in the House quite so long. However, I strongly suspect that she also spent the first part of her political career opposing all the necessary reforms that were advanced by the Conservative party and opposed by the Labour party.

Kali Mountford

rose—

Mr. Heathcoat-Amory

I promised that I would give way to the hon. Lady.

Kali Mountford

I thank the right hon. Gentleman for giving way. Does not the poor attendance of Conservative Members reflect their lack of enthusiasm for this subject? Is that perhaps due to the trebling of poverty under the previous Government?

Mr. Heathcoat-Amory

I have all the help from my hon. Friends that I could possibly wish for.

I now come to the first undisputable fact in the debate—again, it was not contradicted by the hon. Member for Don Valley—which is that during our term in office, the Conservative party built up a world-class economy, with falling unemployment, low inflation, falling public debt, high growth and a globally competitive economy. That is the golden economic legacy to which the Chief Secretary referred.

The House should not accept my view alone. The report of the Organisation for Economic Co-operation and Development published in December 1996, before we left office, said: the prospects for achieving sustained output, growth and low inflation are the best in 30 years. That was the legacy that we bequeathed to the present Government.

Mr. Andrew Smith

Why does the right hon. Gentleman think he lost the election?

Mr. Heathcoat-Amory

It was not the policies that lost us the election. If they did, why has the Labour party tried to adopt our policies? If there is so much wrong with the policies—[Interruption.] So, we do have some critics of the policies that the Labour party has adopted.

Dr. Phyllis Starkey (Milton Keynes, South-West)

When the right hon. Gentleman suggests that it was not the previous Government's policies that the electorate rejected, is he not dangerously close to suggesting that the electorate do not know what they are doing?

Mr. Heathcoat-Amory

As I have just said, if the hon. Lady believes that, she is criticising those on the Government Front Bench who have done their best—although failing in practice, I am afraid—to adopt the economic programme and policies that we bequeathed to them.

Several hon. Members

rose—

Mr. Heathcoat-Amory

I shall make a little progress before I give way again.

The electorate are discovering that the enterprise machine needs to be maintained by people who understand the enterprise economy, not by those who have adopted it in the past two years as a matter of political expediency. The enterprise economy that the Government took over is now being eroded. They are committed in principle not only to the euro but to the entire European Union social democratic model of high taxes, high costs, a heavy regulatory burden, and all the damage that will flow from those things.

In economics there is of course a time lag between cause and effect, but already the damage is becoming apparent. The World Economic Forum reported in the summer that this year the United Kingdom has fallen from fourth to eighth place in the global competitiveness league. That is a better indicator of what is really happening in the economy than all the waffle that we heard from the Chief Secretary in his opening speech.

Mr. Geraint Davies

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I cannot resist the hon. Gentleman.

Mr. Davies

Is it not the case that during the 18 years of Conservative Administration there was a benign global economic environment in which the right hon. Gentleman oversaw two massive recessions, whereas now, at a time when a quarter of the world is in recession and the Conservatives predicted recession here, 750,000 more jobs have been created? How does the right hon. Gentleman explain that?

Mr. Heathcoat-Amory

That is all nonsense. We lived through two global recessions. It is the hon. Gentleman and his party who have had the benign economic world outlook of which to take advantage.

We can all agree that to debate these issues properly we need the facts, and the prime source of facts about the economy must inevitably be the Government. The Chief Secretary referred to a transparent fiscal policy. I have to say that it is so transparent that it has become practically invisible. In the past weeks and months, Ministers have demonstrated a complete inability to recognise even their own facts and figures about the economy. The Chief Secretary was at it again today when he talked about the tax burden.

We know that the additional tax burden on the British people, both announced and implemented, amounts to £40.7 billion over this Parliament. That figure comes from the House of Commons Library, and is based on Government statistics. Doubtless the Government will disown that figure, however, so let me give them another: the OECD reported on 2 November that of 29 countries that it had surveyed, the United Kingdom had the fastest increase in its tax burden this year. The Chief Secretary may disown that figure, too, but he cannot disown the Government's own Budget documents.

I refer the Chief Secretary to page 165 of the "Pre-Budget Report", which states that, when the Government took office, 35.3 per cent. of gross domestic product was taken in tax. On page 150 of the report, it is recorded, on the same basis, that the burden of tax for the year just ended—this is a fact, not an estimate—is 37.4 per cent. of GDP. The House will agree that 37.4 is higher than 35.3, so the burden of tax has increased.

Mr. Alan W. Williams (East Carmarthen and Dinefwr)

Will the right hon. Gentleman acknowledge that in the last year of Conservative Government, debt was £28 billion, which was over 3 per cent. of GDP? His figure is highly artificial.

Mr. Heathcoat-Amory

I have not referred to the reduction in Government debt when we left office: I am talking about the tax burden. It is rather an eloquent commentary on the tax burden that the hon. Gentleman does not refer to it at all: clearly, he implicitly agrees with what I am saying. All I am asking is that the Chief Secretary should recognise the figures in his own document. They are all there in black and white.

The truth is that the tax burden is even higher than the figure that I have given. How do we know that? We know it because the Government have admitted it. In the tables that I have cited, the working families tax credit has been deducted from the tax figure. There is plenty wrong with the working families tax credit. It is wrong, for instance, that those who earn up to £38,000 a year should be able to draw it. Higher-rate taxpayers will, through the churning mechanism, also receive some of the benefit.

We all agree, because the Government have admitted it, that the WFTC is an item of public expenditure. On page 178, the document says: income tax credits … score as public expenditure under national accounting conventions. That could hardly be plainer. Indeed, the same point has been made by the Office for National Statistics. If we add in that social security expenditure, the tax burden is even higher.

Mr. Andrew Smith

The right hon. Gentleman said that there was plenty wrong with the working families tax credit. Would he scrap it?

Mr. Heathcoat-Amory

If there is a great deal wrong with it, it follows that we will change and amend it. The right hon. Gentleman overlooks the fact that we already had family credit, under which many of the people concerned received payments. However, we did not try to turn every business, including every small business, into a benefits agency in the process. We have not seen that process yet or the effect that that may have on employment, but there is a great deal wrong with the working families tax credit. We shall return to that subject in due course. It was very interesting that the Chief Secretary did not even attempt to justify his treatment of the WFTC—as well he might not.

Mr. Smith

Does such treatment not follow the precedent set by the right hon. Gentleman's Administration on mortgage interest relief?

Mr. Heathcoat-Amory

If the right hon. Gentleman is seriously advancing the proposition that mortgage interest relief is the same as a social security benefit, he has not learned anything in the few months during which he has been in his job.

I am not advancing some outrageous opinion or a matter of dispute; I am simply quoting the Government on the working families tax credit. It is stated in the document, as plainly as it could be—admittedly in rather small print at the back—that the WFTC is an item of social security expenditure. However, in the Government's tax tables, they have deducted such expenditure. That is what we mean by fiddled figures. When that figure is added to give a true tax burden, the increase this year and by the end of this Parliament over and above the figures that the Government inherited is even more dramatic.

Dr. Nick Palmer (Broxtowe)

If the right hon. Gentleman does not consider the working families tax credit to be a negative tax, does that mean that, if a Conservative Government were to scrap it, it would not be covered by their tax guarantee, since they would say that it was not a tax?

Mr. Heathcoat-Amory

Our tax guarantee stands unaltered. I emphasise that it is not me who is advancing the proposition that the WFTC is not a tax credit. It is the Government who are stating that it is an item of expenditure. The hon. Gentleman has a dispute with those on his Front Bench, and he might take it up with them during the debate.

So much for tax increases; they are now indisputable. We must next examine, however briefly, what has happened to the money. So far this Parliament we have had the stealth taxes, but what has happened to the increases in public services? I would say that they have been not so much stealthy as invisible. We have witnessed the well-known failure to reform the welfare state, and we all remember that the Prime Minister himself said that the increased expenditure on health and education was to be paid out of reductions in social security expenditure. Despite that promise, the increase in social security expenditure will be more than £30 billion by the end of this Parliament. Again, those are the Government's own figures.

Mr. James Plaskitt (Warwick and Leamington)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

Let us consider health expenditure. The Government and the Chief Secretary persist with the lie that any of my right hon. Friends has ever opposed the Government's increased expenditure on health and education. I regret that that has not only been asserted again by the right hon. Gentleman in his speech but has found its way into the motion before the House.

Kali Mountford

rose—

Mr. Heathcoat-Amory

My right hon. Friend the shadow Chancellor said in the debate on the pre-Budget report—

Kali Mountford

On a point of order, Mr. Deputy Speaker.

Mr. Heathcoat-Amory

—at column 893: I said that last year"—

Mr. Deputy Speaker

Order. Kali Mountford.

Kali Mountford

On a point of order, Mr. Deputy Speaker. Is it in order for a Member of the House to use the word "lie" in debate in that way?

Mr. Deputy Speaker

It depends entirely on the context in which it is used. I do not think that I have heard anything out of order so far. Mr. Heathcoat-Amory.

Mr. Heathcoat-Amory

Thank you, Mr. Deputy Speaker. I apologise for not sitting down immediately when you responded to that point of order. I was quoting from my right hon. Friend the Member for Horsham (Mr. Maude), who said: I said that last year and I say it again today. We support increases in health and education spending. Within a few minutes of my right hon. Friend saying that from the Dispatch Box, the Chancellor of the Exchequer, who is again absent from the debate, said: We have just heard this afternoon from the shadow Chancellor that he opposed putting that £40 billion in"—[Official Report, 9 November 1999; Vol.337, c.893-905.] Even though the Chancellor had heard it just a few minutes earlier, he could not tell the difference between truth and falsehood, and asserted—quite mistakenly—that we opposed the additional expenditure on health and education.

Mr. Plaskitt

Will the right hon. Gentleman give way?

Mr. Nigel Griffiths (Edinburgh, South)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

No, I am not giving way.

What is certain—we can all agree about this—is that the health performance that that increased expenditure is supposed to have enhanced is deteriorating. I cannot be the only Member who is being deluged with complaints from constituents about the national health service.

My health authority in Somerset has just issued an annual report which points out that the number of people waiting, both as in-patients and as day cases, has risen from March 1997, and that the number of patients waiting longer than a year for admission has more than doubled over the past 12 months and shows a ten-fold increase since the end of March 1997. That is a truly shameful record from a party that came into office promising that it would reduce waiting lists and waiting times. The position is the same elsewhere. Somerset is not alone in this. The number of people waiting to get on a waiting list has more than doubled, to 512,000.

What a way to end the millennium—to have built a plastic dome in Greenwich costing three quarters of a billion pounds—

Fiona Mactaggart (Slough)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

—while more than half a million of our fellow citizens are waiting even to get on a national health service waiting list. That is a staggering commentary on new Labour's priorities.

Mr. David Borrow (South Ribble)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

No.

Then there is the matter of central bureaucracy. If the Government have a defining characteristic, it is their almost obsessive centralisation and control tendency combined with a disreputable lack of accountability and democratic control.

We know all about quangos and the attendant problems of accountability. However, the Government have given us son of quango, called task force. An interesting article appeared in The Sunday Times a few weeks ago. It was entitled: Unelected, Unaccountable—Labour's Taskforce Kings". The Sunday Times discovered that there are at least 318 task forces, involving approximately 2,500 people, who are mostly unelected outsiders. They are the favoured ones who have been "invited to the party", as a senior civil servant described it.

I tabled several parliamentary questions to get to the bottom of the matter. I asked the Government for the number of task forces, but they could not tell me—

Mr. Borrow

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

Perhaps the hon. Gentleman can enlighten us. I shall give way just once more.

Mr. Borrow

The right hon. Gentleman would not give way to my hon. Friend the Member for Slough (Fiona Mactaggart) when she challenged him about public expenditure on the dome. Will he acknowledge that there is no public expenditure on the dome and that the money comes from the lottery? Will he correct his inaccuracies?

Mr. Heathcoat-Amory

That is irrelevant. A plastic tent costing £750 million is being erected in Greenwich while 512,000 people are waiting to get on a waiting list. That is a shameful reflection on new Labour's priorities.

Fiona Mactaggart

Will the right hon. Gentleman give way on that point?

Mr. Heathcoat-Amory

No. [Interruption.]

Mr. Deputy Speaker

Order. The right hon. Gentleman is not giving way.

Mr. Heathcoat-Amory

Thank you, Mr. Deputy Speaker. I have given way generously; others wish to participate and I hope that the hon. Member for Slough (Fiona Mactaggart) will speak in due course. I hope that we shall have a long debate, to which many hon. Members will have the opportunity to contribute.

Nothing justifies the fact that 512,000 people cannot get on a waiting list to see a consultant.

Fiona Mactaggart

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

No. I want to speak about another subject—Labour's task forces. The Government do not know their number or the identity of their members. I asked for a list of members of task forces, but the Government could not provide it. They published a White Paper called "Your Right to Know", but they do not even know how many people their task forces comprise. They did, however, provide some examples, which include: a white-headed duck task force; eight regional task forces to support "Waiting List Action"—no one knows what that is because it is yet to issue a report although it was established in November 1997; the NHS efficiency task force, which was set up in June 1997 and has yet to report; and a private finance task force. The latter is interesting because it includes no Ministers, but its project arm is constituted as a private limited company. The Government do not know who sits on the task forces, yet one of them has set up a private limited company. Someone should look into that.

Mr. Dale Campbell-Savours (Workington)

There have been successful task forces, some of which were set up by the Tory Government in the early 1980s. The right hon. Gentleman was a Member of Parliament when the right hon. Member for Henley (Mr. Heseltine) set up several task forces, including one in Liverpool, which was extremely successful, after the riots there. Before he condemns the idea behind task forces, which comprise private and public sector members working on projects in partnership, he should learn a little history.

Mr. Heathcoat-Amory

I am sure that there is useful work to be done by task forces, but when we set them up, we knew their number, who served on them and when they reported. Most of those that I mentioned have not reported, so we do not know whether or not they are successful.

It is truly alarming that the Government do not know the cost of the task forces. I tabled an innocent parliamentary question about the cost of setting up and servicing them, and the Government did not know the answer. I asked about the rules that applied to the selection and conduct of the appointees, but there are none. The new Labour state is unaccountable, expanding and expensive.

The cost of administration by Government Departments has increased by £1.1 billion since the general election. That includes the doubling of the cost of special political advisers in the Departments. We conducted a larger exercise to consider waste in the public sector. A preliminary trawl through some Departments has already identified £410 million of waste and extravagance. That includes the passport fiasco in the summer, which cost almost £30 million, including £16,000 to buy umbrellas for the unfortunate members of the public who had to wait in the rain while the Home Office tried to sort out the mess. There has been an overspend of £20 million on the BSE inquiry, which will be 18 months late. That will not help a single farmer.

Mr. Alan W. Williams

Will the right hon. Gentleman give way on that point?

Mr. Heathcoat-Amory

I shall not give way again. If I owe any hon. Member an intervention, it is the hon. Member for Slough. If she wants to intervene now, I shall give way.

Fiona Mactaggart

Why should we take any notice of the right hon. Gentleman, whose grasp of history is so vague that he ignores the initial responsibility for the dome, and whose grasp of economics is so peculiar that he suggests a link between spending lottery money on the dome and delays in the NHS? The Government have liberated money from the lottery to improve the health service. The right hon. Gentleman's point is as logical as complaining that people are building private houses while the dome is being built.

Mr. Heathcoat-Amory

I am not sure whether that was worth waiting for.

Mr. Barry Gardiner (Brent, North)

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I shall not give way again because I have already dealt with the point.

We found more than £100 million of fraud in the distribution of benefits from local government. Nine separate consultants have been appointed to advise the Government on the privatisation of the London underground. However, because the Government keep changing their mind—or having it changed for them by the hon. Member for Brent, East (Mr. Livingstone)—most of the expenditure is wasted. It had already totalled £18.5 million by May this year, and the figure is almost certain to have increased greatly by now.

When the Prime Minister was challenged about expenditure on the euro last week, he refused to give a figure for expenditure on the national handover plan. Later, his spokesman gave a figure to journalists, but it did not include expenditure by Government Departments on the changeover to the euro, which is already happening. The figure is a secret.

Let us consider the fiasco of gold sales. An independent estimate has shown that selling gold in a falling market to buy euros has already cost £26.2 million—a highly conservative estimate.

Mr. Gardiner

rose—

Mr. Nigel Griffiths

rose—

Mr. Heathcoat-Amory

A superficial trawl through some Departments' expenditure reveals a total of £410 million of waste.

Mr. Gardiner

rose—

Mr. Plaskitt

rose—

Mr. Heathcoat-Amory

I shall not give way again. The figures that I have just outlined constitute the public expenditure that the Government do not like to discuss. They are mirrored by the expenditure about which the Government like to boast. That leads us back to our old friend, fiddled figures. A good example is the announcement by the Minister of Agriculture, Fisheries and Food on 20 September of a £530 aid package to farmers. Some of the more gullible members of the press took that at face value and described it as a £500 million rescue package. The Agriculture Committee has done us all a service by producing a report that has shown that no less than £293 million of that had to be paid anyway under the existing rules. A further £94 million had already been paid; £ 60 million simply maintained the existing hill livestock compensatory allowance; and another £89 million represented a simple deferral of extra future charges, which left only £1 million of extra money. The Committee, which has a Labour majority, said that that had led to "misunderstanding and disappointment" in the farming community—I am not at all surprised.

The Government are disguising the elements of public expenditure that they do not like and fiddling the figures in their boasts about other items of public expenditure.

Mr. Gardiner

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

No, I am about to finish.

Labour's economic policy simply amounts to almost endless repetition and repackaging and the re-announcement of bits of public expenditure. Meanwhile, it is entirely silent about the huge and growing failure to reform the welfare state as promised. All that is paid for by stealth taxes, which are then fiddled to disguise the truth. That is a pretty nasty record about which we shall no doubt hear more from my hon. Friends.

I hope that Labour Members recognise the quotes with which I shall close my remarks, because they come from their new colleague, the hon. Member for Witney (Mr. Woodward), who had this to say about Labour economic policy: This is another chapter in the Great Labour Lie. Incidentally, he said that last month. He also said: The spin doctors are having a field day but the priorities are all wrong … Contrast that with the Conservatives' five Common Sense Guarantees, giving parents powers to improve failing schools, guaranteed waiting times for different operations, a reduction in the burden of taxation, work for those who can work and the protection of our currency, the Pound. He also commented: This year was meant to be Labour's 'year of delivery' and yet all we have seen from Blair's Government so far is broken promises and distorted priorities. That is what a member of the parliamentary Labour party thinks of the Government's economic policy, and I agree with him.

2.23 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Wells (Mr. Heathcoat-Amory) had great fun with the public sector debt, but I should point out that it has certainly reduced a lot, whatever the figures may be—not only that, but we are paying much less interest on even that reduced amount so there is great positive advantage from the work of my right hon. Friend the Chancellor.

The right hon. Gentleman dealt with health expenditure, which I shall discuss, but I want first to deal with an innovation from the pre-Budget report. In his statement, my right hon. Friend the Chancellor said that the £300 million that he would raise from tobacco duties would be passed to the health service, and few could disagree with that approach. He said: There is a strong public health case for year-on-year, real terms increases in the price of cigarettes. While we will now make our decisions Budget by Budget, I can announce a new approach: the extra revenues from a 5 per cent. real terms rise in cigarette duties would go straight to additional investment in the national health service, worth £300 million a year—that is £300 million extra for hospitals and health care which could start next April."—[Official Report, 9 November 1999; Vol. 337, c. 891.]

I have always agreed with the Treasury line on hypothecation: although there are obvious advantages in being able to relate expenditure to revenue—if we want something, we have to be prepared to pay the tax that will provide it—earmarking expenditure means losing the ability to decide priorities; not only that, but the tax collected may not accord with expenditure plans. There is a case, which I have been pursuing for years, for earmarking money that has been raised from taxation for particular purposes, and I am pleased that my right hon. Friend the Chancellor has accepted that in modified form. An exception should be made on hypothecation where demand is high and ever increasing, the willingness to have certain services is strong and accepted by all and costs will increase indefinitely. The national health service—perhaps uniquely, I believe—meets those requirements. As people's wants are satisfied, they turn ever more to their medical care needs; not only that, but those needs and costs are increasing and will inevitably continue to increase.

When choosing his excursion into hypothecation, my right hon. Friend the Chancellor was right to select the NHS. To me, such expenditure satisfies those rare conditions that can justify its introduction. One thing is clear about the health service: its cost will rise ever faster than the rate of inflation or even the growth in the economy. In the early post-war years, the NHS was a beacon of hope among the privations of the period and met many of the highest aspirations of the time. In a society that is more affluent than when the NHS was created 50 years ago, more of the basic needs of our people are being met—they have adequate food and heating in their homes and can indulge themselves in ways unimagined in the early post-war years—but much of that private affluence draws attention to the fact that, despite the £20 billion that was given to it by my right hon. Friend, our national health service will continue to be underfunded because of the way in which new treatments are made available.

Increasing demand will make it difficult for future Governments to avoid either ad hoc rationing or its more formal acceptance. A health service that delivers at the point of need will have to embrace newer and increasingly expensive forms of treatment as medical solutions pour out of the world's research laboratories. As a proportion of our gross domestic product, our national health service represented 3 per cent. in 1960, but that figure is rising to about 7 per cent. for next year. The United States spends more than 15 per cent. and France and Germany more than 10 per cent.

Dr. Starkey

I am listening with interest to the point that my right hon. Friend is making about the advantages that science can bring to the health service, but would he not admit that some scientific advances could reduce the cost of treatment in the health service? They would not necessarily always add to it.

Mr. Sheldon

Some treatments could achieve a reduction in cost, but the overwhelming effort goes into research work and that effort will increase indefinitely. I shall come to explain why I think that that will continue ever more.

We have an efficient health service, but it will come under ever-increasing strain if we do not provide further resources, and the demographic effect is only one problem. The population are ageing and, as wants are met, those of health will represent perhaps the major example of increasing expenditure. The consumer society means rather less to older people compared with their increasing concern for their personal well-being, and the time is coming when we shall have to think more of private medicine, which I do not favour, or introduce a special NHS tax.

Anyone who has served in the Treasury has a visceral feeling about hypothecation, and I am sure that it is shared by the Treasury Ministers on the Front Bench. An important weakness of hypothecation is that it does not take account of changing patterns of priorities in expenditure—the road fund licence still casts its shadow 70 years on—but a certain aspect of health is that, whatever efficiencies may be provided that might limit parts of it, demand will increase into the indefinite future.

In an important study of health care, Hoffmeyer and McCarthy have demonstrated the almost exponential growth of health expenditure in every country. It is possible that people will be willing—more willing, at least—to accept a national health service tax when they can see the direct consequences of their expenditure than to accept other taxes, in respect of which their expenditure disappears in the vast generality of public spending. The time has surely come for the introduction of such a tax to be sensibly explored.

An aspect that will need to be examined is the relationship between the tax and, in particular, the present income tax rate. Some recasting will be necessary. Much work will be needed. Although the Treasury normally opposes hypothecation, it should examine the matter along with the Inland Revenue. However, the case for such a tax is greatly helped by the Chancellor's move in that direction.

Nevertheless, there is a danger in the kind of hypothecation that the Chancellor is introducing. In the case of a partial hypothecation, when part of the spending comes from Government grants and part of it comes from ring-fenced revenue, the danger is that the expenditure round may include a reduction to offset part of the increase arising from the hypothecation, and that the public expenditure element raised by the Chancellor in tax may be reduced. That may not be a problem in the short term—my right hon. Friend the Chancellor is committed in this instance—but I am looking to the future. Treasury involvement in future expenditure rounds may not indefinitely retain the attitude that my right hon. Friend has accepted. It is possible that, following any close examination of the case for an hypothecated NHS tax, the real choice will be to go the whole distance to an all-embracing tax.

2.32 pm

Mr. Stephen Dorrell (Charnwood)

The fact that the debate focuses on a relatively narrow set of economic policy issues—issues raised by taxation, and associated issues relating to public expenditure—is an important reflection of the way in which economic ideas have changed over the past quarter of a century.

When I entered the House in 1979, every debate on economic policy covered the whole field. We used to discuss, at great length, monetary policy and the correct position for the interest rate. I make no apology for welcoming the fact that that is no longer regarded as a mainstream short-term political responsibility. I also welcome the fact that my right hon. Friend the Member for Horsham (Mr. Maude), the shadow Chancellor, has set up a commission —I anticipate—to move the Conservative party's position in the direction of an independent status for the Bank of England. I am glad that that is no longer regarded as the focus for a short-term debate in the House of Commons.

When I first entered the House, we used to engage in endless debates about incomes policy. I am glad that all Members—or, at least, virtually all Labour Members—consider incomes policies to be the responsibility of employers and employees, and not a subject for political debate here. We also used to have endless debates about industrial policy, but I am pleased to say that industrial policy is now considered to be the responsibility of customers and their suppliers, and is not regarded as a focus for political debate in the Chamber.

Nowadays, our economic policy debates are much more narrowly focused. They deal partly with trade and competition policies but, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), the shadow Chief Secretary said, a regulatory framework is necessary to the operation of an open-market system, and we take account of that as well. We also now recognise that, although the issues are important to the House, the House is part of an international trading network.

That is one set of issues with which we deal here. However, when it comes to economic policy, there is a supremely important set of issues, which is unambiguously the responsibility of the House of Commons and no one else. I refer to the two critical questions that lie at the heart of fiscal policy. First, how can we, or should we, tax the people who elect us? Secondly, what are the proper priorities for spending the money that they pay as a result of those taxes? Those are, unambiguously and without qualification, issues for debate here in the House of Commons.

I make no secret of my welcome for the more plural world that I have described, in which the majority of key influences on the evolution of the economy are not politicised in the Chamber, but are widely diffused throughout society and removed from short-term party politics. I am glad that, throughout the House, we now recognise the global nature of a sophisticated economy. In particular, I welcome the fact that those developments imply for the British House of Commons, and for British domestic politics, a clearer focus on the central questions of fiscal policy. It is on those questions—first, how much should we tax; secondly, what are our spending priorities in regard to the use of tax revenues—that I want to concentrate.

I think that those questions should be taken in order. The first does not, in fact, relate to how much we would like to spend; it asks what is the right level of taxation. There are a number of reasons why taxation must determine expenditure, rather than the other way round. The Government's plans in regard to the right level of tax are swathed in obscurity. The Chief Secretary waxed lyrical on the importance of transparency. I agree with him about that, and especially about the essential question of the Government's intentions in regard to the tax burden imposed on those who elect us. However, having ploughed through the 160 pages of the pre-Budget report. I found precious little.

I then picked up what I assume to be an appendix to the pre-Budget report, entitled "Analysing UK Fiscal Policy". I thought that that might be a hint that we would be given some signposts somewhere setting out the Government's intentions for tax policy but, as I flicked through the pages, it became increasingly clear that all I would find was algebra.

I think it important for my electors to know that, according to the Government's policy,

"PSNBt = CBt + PSNIt".

As my right hon. Friend the Member for Henley (Mr. Heseltine) once memorably observed in deference to the new chief economic adviser of the Treasury, it is all Balls. It is all written out in the document, but the Government give us no clear statement about the tax burden that they intend to impose if they have the opportunity to do so.

As my right hon. Friend the shadow Chief Secretary made clear, what we have is the record of what has happened to the tax burden during the two and a half years during which the Government have been in office. As we are not allowed to look into the crystal ball, we have no option but to look at the record, and the record is clear enough.

Mr. Edward Davey

The right hon. Gentleman considers what should be the right level of taxation. Does he think that his party's guarantee that the tax burden, as a percentage of gross domestic product, should fall year on year ought to continue indefinitely, or does he think that it should stop at some point?

Mr. Dorrell

If the hon. Gentleman allows me, I shall set out what I consider to be the right approach in a moment, after I have dealt with the Government. I have been trying to elucidate their policy, as far as it can be made out. Nothing is stated in their supposedly transparent documents dealing with the future; what there is is a record.

The Chief Secretary sought to mislead the House by referring to his Government's record, but neatly omitting the first year of that record. He can challenge that if he wishes, but it is here in the document prepared by the House of Commons Library. Ministers do not normally challenge what is in Library documents, especially when the table concerned acknowledges as its source Her Majesty's Treasury, Budget 1999, HC 298. The figures from Her Majesty's Treasury show that, since the present Government came to power, the burden of taxation has risen from 35.4 per cent. to—at the end of their plans—37.1 per cent. Those are, to within a couple of percentage points, the same as the figures in the amendment.

Therefore, the Government' s record, as reported either by the Treasury or by the OECD —my right hon. Friend the shadow Chief Secretary referred to that latter report— shows that, within two and a half years of their taking office, the tax burden on the British economy increased by about two percentage points, not including the cooking of the books in relation to the working families tax credit.

The Government's policy on the tax burden on the British economy, in so far as we are able to divine it—we can do that only from their record—has been to increase it. However, that policy is fundamentally wrong, for two important reasons, the first of which is a matter of political choice—that those who elect us to the House increasingly believe that they are better able to decide how their own resources should be spent. Not only do they want to have a greater say in, and control over, their own lives, but they have long observed that, when their individual spending decisions are made by them and not made on their behalf by someone else, the results more accurately reflect their own wishes and demonstrate more efficiently used resources.

Therefore, our electorate have a strong preference, based both on instinct and on experience, for the maximum share of the economy to be devoted to private individual choice, thereby allowing suppliers and consumers to balance supply and demand.

Mr. David Kidney (Stafford)

Will the right hon. Gentleman give way?

Mr. Dorrell

I shall in a moment.

That is the first reason why the Government's willingness to allow the tax burden to rise is wrong.

Mr. Kidney

Will the right hon. Gentleman give way?

Mr. Dorrell

I shall in a moment; but, before the hon. Gentleman intervenes, I should like him to hear the full weight of the argument in which he seeks to intervene.

The second key reason why the Government's willingness to allow the tax burden to rise is wrong is that the economy in which Britain lives is quite simply unprecedented: an open free-trading economy in which a rising tax burden simply makes economic activity in Britain increasingly uncompetitive and impairs the wealth-creation process. If our tax burden is higher—as it now is, for the first time in living memory—than that in Germany, that is a serious competitive disadvantage for those who seek to locate economic activity in Britain.

Mr. Davey

Rubbish.

Mr. Dorrell

The hon. Gentleman should argue the point with the OECD—I do not pretend to have read every OECD working paper—and, once he has done so, perhaps he would like to report to the House precisely which bit of the OECD's logic he disagrees with. Until then, if he does not mind, I should prefer to rely on the OECD's stated conclusions.

The OECD said that the United Kingdom's tax burden is higher than Germany's, and, moreover, that our tax burden is rising faster than that of any other OECD member. Such a situation is wrong not only because of political principle—which, I accept, is a matter of personal preference—but because it impairs the competitiveness of the British economy. If our competitiveness is impaired, not only will our capacity to deliver rising individual living standards be undermined, but—this is the critical point—the very thing that the Government say that they want to safeguard will be undermined: the quality of public services-which are paid for by taxes raised from that impaired economic base.

Mr. Kidney

I believe that the OECD figures will be found to be false, but that is not the point of my intervention. The right hon. Gentleman is entitled to his opinion that the great British public want to keep a greater proportion of their income, but my opinion is that the great British public want to pay more for good-quality public services. However, is not the deciding factor between our views the result of the 1997 general election?

Mr. Dorrell

I have rarely heard a more spectacular own goal than that intervention. The hon. Gentleman is certainly entitled to his view—that the British people would vote to pay more taxes if given the choice—but his problem is that the Prime Minister shares my view on what one should say to the electorate. During the previous general election campaign, the Prime Minister went round telling the electorate that they could vote Labour and there would not be a tax increase. Moreover, the Chief Secretary is anxious to show that the Government have not broken precisely that pledge—although the figures that I quoted show that they have broken it in style.

During the general election campaign, the Labour party was so anxious to disagree with the conclusion of the hon. Gentleman and to agree with the one that I hold on voters' preference on taxation that Labour misled the electorate about the implications of electing a Labour Government.

The two reasons that I have given—first, that people want to have lower taxes; secondly, that, in a globalised economy, the competitive interests of the British economy require lower taxes—make it important for our tax policy to be based—this answers the question asked by the hon. Member for Kingston and Surbiton (Mr. Davey)—precisely on the tax guarantee given in my right hon. Friend the Leader of the Opposition's document, "The Common Sense Revolution". That states not that the tax burden would be lowered annually—that is not what the guarantee says—but that, by the end of the first Parliament of the next Conservative Government, the tax burden will constitute a lower share of national income than it does on the day that that Government are elected.

In a competitive environment, tax competition is not an expression of opinion, but a fact of life—it is not something that the House is able to legislate away. In a globalised economy, we have no choice but to deal with tax competition. Unless we want to turn ourselves into the Albania of the future, we have no choice but to engage in tax competition. We want to trade in the marketplace, where tax rates are a key determinant of the competitiveness of the British economy.

Mr. Davey

My question was: at what stage does the right hon. Gentleman think that, in his world of tax competition, the tax burden as a percentage of gross domestic product will have reached the optimum level? Does the burden have to decline inexorably, to nought, or, at some stage, will the tax burden as a percentage of GDP reach the right level?

Mr. Dorrell

My right hon. Friend the shadow Chief Secretary referred to the fact that the principles of the competitive economy were first elucidated, in the 1770s, by Adam Smith. The competition process has continued in the intervening 230 years, and I do not think that it will halt in the foreseeable future. The hon. Gentleman is asking me to define the end of the process, but the process will never end. The competition process is an inevitable part of a competitive economy. As long as the British economy participates in a global economy, there will be intense, relentless and unavoidable pressures to reduce the tax burden. I believe that to be true for the foreseeable future.

Mr. Geraint Davies

How seriously can we take Conservative Members' tax guarantee when, the last time that they made a tax guarantee, we ended up with 22 additional Tory taxes? Does the right hon. Gentleman agree with the right hon. Member for Huntingdon (Mr. Major), the former Prime Minister—his former leader—who said that the tax guarantee will necessarily lead to swingeing public expenditure cuts? The right hon. Gentleman's position is impossible.

Mr. Dorrell

I am grateful to the hon. Gentleman for asking his second question, as it takes me neatly to the second heading in my speech—to state directly the implications of the tax guarantee for public expenditure, and particularly for public services. I attach considerable importance to that subject.

In my time as Health Secretary, I was often told that my attitude to the requirement relentlessly to bear down on the tax burden—my attitude today is the same as it was when I was a Cabinet member—was inconsistent with my commitment to the maintenance and development of the national health service on the basis that health care should be available according to need rather than ability to pay. Over the past weekend, I have been told that again, by the hon. Member for Witney (Mr. Woodward). I am sad that he should have quoted that wholly flawed logic—I believe that it is profoundly mistaken—as one of the reasons for letting down his electorate.

The logic is mistaken for two key reasons. First, it is simply innumerate to conclude that it necessarily follows that, because the national health service accounts for 6 per cent. of public expenditure, and public expenditure as a whole accounts for about 35 per cent. of national income, the 6 per cent. must fall if the 35 per cent. falls. If taken together, health and education account for barely a third of all public expenditure. If we mean anything at all when we say that health and education are priorities, surely to goodness we mean that those two spending programmes are more important than many others in the total accounted for by public expenditure, and that we envisage that health and education will take a rising proportion of that share of the economy devoted to public expenditure.

So long as the two numbers concerned are roughly 12 per cent. for health and education and around 35 per cent. in total and, so long as those two totals remain as far apart as they are, it is little better than pusillanimous to say that we are unwilling to face up to the implications of the assertion that health and education are priorities and to make choices elsewhere in the public expenditure programme. It is an old description of the art of politics that to govern is to choose. That is what Governments are there for, in the context of this fiscal policy debate—to make judgments about what they can afford to raise in taxation, given the constraints that I have described, and then to make choices about where priorities lie in the use of that expenditure. It is, I repeat, pusillanimous to say that we cannot deal with our priorities in the context of a declining share of national income taken in tax.

Mr. St. Aubyn

Does my right hon. Friend agree that, if those priorities are observed and good housekeeping elsewhere in the national budget is undertaken, the total tax revenue might go up in the medium to long term and provide even more resources for health and education?

Mr. Dorrell

I agree with my hon. Friend, who accurately pre-empts my next point. It is not only a matter of arithmetic to say that the proposition that one cannot be in favour of lower taxes and higher health and education expenditure is wrong. There is a more fundamental reason why it is wrong. If the tax burden is allowed to rise to an uncompetitive level, we shall not succeed in safeguarding health and education expenditure either, precisely for the reason that my hon. Friend identifies—that an underperforming economy will not deliver the tax revenues to pay for the health and education spending that I for one want to see.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) addressed the question of how we deliver an effective NHS for the future. He advocated the introduction of a form of hypothecated specific tax revenue for the health service. I do not agree with that view. I am strongly of the view that the main burden of the financing of health care in Britain should come from the Consolidated Fund because it reflects one of the highest priorities not just of me as a politician, but of the people who elect me. If one asks them what they think they pay taxes for, there are very few services that score higher on their priority list out of the main Consolidated Fund taxes than the NHS. That is where the main burden of health expenditure ought to lie.

As a former Health Secretary, I would not relish the prospect of trying to manage the health service through the peaks and troughs of the economic cycle on the proposition that health expenditure, for some reason, needs to fall because the tax yield from the hypothecated revenue has fallen because we are going through a short-term recessionary period. The right hon. Gentleman may disagree, but that is the implication of linking health expenditure directly to a hypothecated tax yield—the expenditure on health care would rise and fall according to the yield of the tax. We all know that yields from tax rise and fall according to the stage of the economic cycle.

Mr. Sheldon

We know that those who decide on the spending should decide on the taxing, and that is so throughout all public expenditure. However, there are limited circumstances —I can think of only one, the NHS—where expenditure and taxation can be directly related so that we can see what people are prepared to pay for what they are to receive.

Mr. Dorrell

I am repeating myself, but I think that the problem with that argument is that the proposal links expenditure on health to the yield of a particular tax in a particular point in the cycle, rather than allowing health expenditure to be planned in the medium term out of the Consolidated Fund, which I believe to be a better model.

The central charge against the Government is that they have failed so far, in two and a half years, to deliver the control of public expenditure that is one of their central obligations. Because they have failed to control public expenditure and to make the necessary choices, they have failed to control the tax burden imposed on the British economy. That rising tax burden is undermining the competitiveness of the British economy. which is undermining precisely the objective that the Government say that they hold dear—the proper financing of public services.

The Government cannot claim that they are ignorant of the dilemma. Before the general election, the Prime Minister said that he would pay for increases in health and education spending through savings on social security spending. Through their failure to deliver on that central pledge, the Government are delivering slower increases, possibly, on health and education than would have been available had they really faced the difficult decisions. More importantly, the tax burden is rising and the Government are undermining competitiveness, and that will jeopardise our capacity to deliver not just rising living standards, but high-quality public services in the future.

2.57 pm

Mr. Paul Stinchcombe (Wellingborough)

As we have heard, through the policies of this Government we have secured £40 billion more for schools and hospitals. That amounts to a significant part of the funds needed to make the necessary investment in the public services that the public need and cherish most. It is £40 billion with room to spare—the room in which the war chest is kept safely locked, and we have the key.

It is investment that the Tories would never have made. They said that it was reckless, irresponsible, the product of Peter Pan economics and the consequences of forecasts that could not be met. We know now that the doomsayers on the Opposition Benches were wrong, and that our forecasts were right. One year on, we enjoy historically low rates of inflation and rates of interest, and more people are in work than ever before.

Since we know that the Conservatives' forecasts were wrong, we know also that had they won the last election, God forbid, the economic policies that they would have followed would have been wrong also—as wrong as the policies that they followed in government. They said then that there was no alternative—at least none that they could think of—to boom and bust, mass unemployment, creeping inflation, 15 per cent. interest rates, two recessions, wrecked businesses, repossessed homes, ruined lives, a huge national debt and underfunded public services.

Mr. St. Aubyn

If the Government's economic policies have been so successful, why has the savings ratio collapsed over the past two years? Can that be a sustainable basis for our economy?

Mr. Stinchcombe

It is interesting that of all the economic failures that I mentioned, the hon. Gentleman did not question one but referred instead to the savings ratio.

Under the past two and a half years of the Labour Government, we have seen that there was a real alternative—one of steady and sustainable economic growth, low inflation, high employment rates and proper investment in our public services. We were told that we had copied the Conservatives' policies, but the Conservatives did not back the new deal, the minimum wage or the independence of the Bank of England. Indeed, they set their face stonily against every one of the prudent policies that have changed their record of economic failure into our record of economic success.

Mr. Geraint Davies

I remind my hon. Friend that a falling savings ratio is associated with growing confidence in a growing economy. Does he agree that that has been observed in economic history and is a signal of the great success that he is so eloquently painting?

Mr. Stinchcombe

My hon. Friend makes his own point.

There is a new avenue in economic policy: not tax cuts and possessive individualism, the way of the old right; not tax and spend, the way of the old left; but sustained investment and sustainable growth in both private and public sector, the way of the new left and the centre left. Through our enterprise we are prosperous and through our investment in public services all of us can better share in that prosperity.

Our future prosperity surely depends on schools. The Tories had 18 years to invest in schools, yet before the general election I was more likely to see buckets than computers in the classrooms that I visited. What a difference we have made in two and a half years—through our investment, in my constituency we now have boilers that work, roofs that do not leak, more books and more information technology.

This year alone, I opened two computer suites in junior schools—Victoria junior and Park junior—and I have seen others in virtually every other school that I have visited. It is not only computers: it is new build, too. During the general election campaign, I was besieged by letters from angry parents of children at Higham Ferrers infants school facing class sizes of 38. This year, I opened the new classroom that brought the class size down to 30. That is not the only classroom that has been funded. Earlier this year, my right hon. Friend the Minister for School Standards came to Wellingborough to open the extension to Warwick primary school. Not only under-11s but secondary school children, too, will benefit.

Mr. Letwin

Will the hon. Gentleman give way?

Mr. Stinchcombe

No. I have a specific point on which I want to close.

Every summer since I was elected, there have been insufficient secondary school places in Wellingborough and the nearby villages.

Mr. Letwin

Will the hon. Gentleman give way?

Mr. Stinchcombe

I am making a specific point relating to my constituency. I am sure that the hon. Gentleman will be very interested to hear what the new right hon. Member for Kensington and Chelsea (Mr. Portillo) said about exactly this problem.

Because of the shortage of secondary school places in Wellingborough and the contributor villages, children have had to be bussed to other towns. Last week, I received a ministerial letter stating that approval had been given for the expansion of Wollaston school by one form entry, enabling the need to be met. That is what I and the county council asked for. Real money—£927,000—is being delivered to be invested in real students, bringing a real solution to a real problem.

Mr. Letwin

rose—

Mr. Stinchcombe

If the hon. Gentleman will sit down, I will bring my remarks to a close.

I am sure that that solution will be welcomed by Conservative Members and especially by the right hon. Member for Kensington and Chelsea, who came to my constituency not long ago to talk about the problem of secondary schools there. He showed great concern, for which we were grateful. He went on local radio to talk about the cause of the problem.

I have a tape of what the right hon. Gentleman said. He was asked directly whether the Secretary of State for Education and Employment should have closed a local secondary school and, in the clearest possible terms, he replied: It seems absolutely extraordinary that should have been decided … The whole thing seems to have been done without any foresight or imagination whatsoever, just to have been incredibly inept, and I think the people responsible for these really, seriously wrong decisions need to stand up and be brought to account. One cannot be clearer than that. There is no room for doubt: it was the fault of the Secretary of State for Education and Employment who made the decision—the last Tory Secretary of State for Education and Employment, who was in the Cabinet with the right hon. Member for Kensington and Chelsea. What a savage indictment of his own party's performance in power are the phrases "incredibly inept", "absolutely extraordinary" and "seriously wrong decisions" and the reference to the lack of foresight and imagination.

The Tories made the mistakes that caused real pain to my constituents. Through our economic policies, we pick up the pieces, heal that pain and clear up the mess.

3.5 pm

Mr. Edward Davey (Kingston and Surbiton)

Like the hon. Member for Wellingborough (Mr. Stinchcombe),I have constituents with children of secondary school age who have a problem getting a place, but that problem could be solved not by extra spending and building more classrooms but by overturning the Greenwich judgment.

Mr. Ruffley

Will the hon. Gentleman give way?

Mr. Davey

No, it is too soon.

If the Government overturned the Greenwich judgment, Kingston borough council could give priority to local residents, over residents of neighbouring boroughs, who want to send their children to local secondary schools. Just like the Conservative Government, they have failed to do that. I wish that they would do it, because that would certainly give good value for money and my constituents could have their secondary school places at no extra cost.

Mr. Geraint Davies

Is it official Liberal policy to abolish the Greenwich judgment, so that no pupil in Croydon, for example, would have the right to go to school in another borough; or is that simply the hon. Gentleman's view?

Mr. Davey

It is Liberal policy to overturn the Greenwich judgment, but the hon. Gentleman misrepresents the implications, as it would not prevent children living in Croydon going to school in other boroughs; they simply would not have priority or an equal right to places with those who live in those boroughs. Residents pay council tax to their local education authority and, surely, in a democratic system, they should have priority. I am more than happy to confirm that that is my party's policy.

The right hon. Member for Charnwood (Mr. Dorrell) made an important contribution to the debate on public expenditure. He argued that there was no problem with any Government continually reducing the tax burden and gave two major reasons why that burden as a percentage of gross domestic product must decline year on year: the need for competitiveness for the wider economy and the need to increase personal choice.

Many factors determine an economy's competitiveness, including the ability to have open markets and to trade freely across the world, the education system that underpins people's entrepreneurial and innovative abilities, and the amount of research and development being undertaken. The link between the tax burden as a share of GDP and an economy's competitiveness is very weak. Many other factors are far more important.

I agree that if the tax burden grew exponentially as a proportion of GDP, there would come a point at which the public sector would drive out the private sector and competitiveness would be compromised, but I do not think that we are anywhere near that. We need to get best value for money and resist large increases in the tax burden, but the right hon. Gentleman oversold the case on competitiveness.

Mr. Dorrell

The hon. Gentleman may remember that our rate of profits tax started the 1980s at about 50 per cent. and ended that decade at about 35 per cent., and that pretty well every other major European country cut its rate of profits tax, usually about two years behind us, in line with the precedent established by Nigel Lawson when he was Chancellor. Was that pure coincidence, or did the other countries feel subject to tax competition and need to cut their tax in order to remain competitive?

Mr. Davey

I do not seek to deny the importance of tax competition, but the right hon. Gentleman mentioned a specific tax and how it affected competitiveness and foreign direct investment. One may need to shift the burden of tax—for example, one may need to reduce the tax on our corporate sector and increase it on the causes of pollution—but that is a different issue from the overall tax burden.

Mr. Dorrell

Which specific taxes would be exempt from the general requirement? I would have thought that if one established a general requirement to reduce the burden of tax, it would flow through to specific taxes, but the hon. Gentleman seems to think that some specific taxes should not be subject to such tax competition.

Mr. Davey

It is clear that some taxes have more impact on international trade decisions, and thus competitiveness, than others. Corporate tax is more likely to affect corporations' decisions on where to locate than the level of income tax. It is obvious that different taxes will have different propensities to affect investment decisions. I have read much of the academic literature on the point, and there is no evidence to suggest that taxes on income, property or sales affect international decisions on the location of business.

Mr. Tyrie

Unfortunately, some economic illiteracy is creeping into the debate. An increase in tax anywhere increases the costs on everybody else and on any other firm operating in the economy. Some firms may supply goods for the domestic market and some may supply them for export, but that is irrelevant to the effect of an increase in tax on the overall competitiveness of a country, because the effect will eventually feed through. That is why the only figure that should be considered in the making of comparisons is the level of the tax burden as a whole.

Mr. Davey

I shall conclude this exchange by reiterating my point that the share of a country's GDP that its tax burden represents is a small indicator of its competitiveness. The level of the tax burden is not an explanation of differences in export performance between countries.

The right hon. Member for Charnwood also made a point about personal choice, and that is one reason why the Liberal Democrats wish to decentralise much economic and tax power. In that way, local communities could have more say, through the democratic process, in how tax is spent. When it comes to collective provision of schools, roads and libraries, local people would have a much better opportunity to exercise their choice if the decisions were made at the grass roots. However, if one takes that approach too far at the national level, taxes would be reduced and, as a corollary, benefits to the poorest would also be reduced. If year on year—or Parliament by Parliament, whichever is Conservative policy this week on the tax guarantee—taxes were reduced, it would inevitably hit the poorest in our society.

Mr. Dorrell

Why?

Mr. Davey

In the right hon. Gentleman's analysis of the share of the national budget taken by different Departments, he failed to tell the House that social security takes by far the largest share. It does so to give some personal choice to those who are less fortunate in our society. If one were to reduce taxes to almost 0 per cent.—the right hon. Gentleman failed to say whether that was his eventual aim when I asked him earlier—the poorest would be hit the hardest. That is the inevitable corollary of the right hon. Gentleman's proposals.

Mr. Geraint Davies

Does the hon. Gentleman agree that tax not only constitutes the tax burden but is invested in quality of life issues? For instance, tax may be invested in the transport infrastructure and, therefore, if used wisely, tax could attract inward investment. The point that the right hon. Member for Charnwood (Mr. Dorrell) attempted to make is somewhat naive and simplistic.

Mr. Davey

I agree. Indeed, I welcome this debate because it is important for the House to debate public expenditure more often and in more detail. I refer the House to the speech I made on Second Reading of the Government Resources and Accounts Bill, in which I went into some detail on how the House should spend more time debating public expenditure and voting on it. This time last year, a similar debate, which would have focused on the public service agreement document published by the Government last December, was pulled because of the resignation of the present Secretary of State for Northern Ireland, the right hon. Member for Hartlepool (Mr. Mandelson). Therefore, this debate is long overdue and I welcome it.

We are in the run-up to the Budget, and to the second comprehensive spending review next summer. This debate will enable the House to give some advice to the Chancellor. I hope that the Chief Secretary will relay to the Chancellor the fact that the Liberal Democrats are delighted that he has taken much of the advice we have given him. For example, he gave independence to the Bank of England, which was in the Liberal Democrat manifesto but not in Labour's, and that was the most significant change in economic policy in this Parliament. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) mentioned the recent innovation of hypothecation of fuel and tobacco duties for extra spending. That is an excellent innovation that we welcome. The final policy that the Chancellor has stolen from the Liberal Democrats is free television licences for over-75s. I just hope that Ministers steal more Liberal Democrat policies, because that would be of great benefit to the country.

Mr. Letwin

I had not realised that we could attribute so many of the Chancellor's mistakes to the Liberal Democrats. Will the hon. Gentleman reflect on the comments of the Economic Secretary when she was specifically asked by one of my hon. Friends about the so-called hypothecation of fuel duties and she said that she would give him "no assurances" one way or the other? Does the hon. Gentleman accept that the Government do not appear to have accepted the Liberal Democrats' view on the hypothecation of fuel duties?

Mr. Davey

The hon. Gentleman is right to suggest that the Government have not been clear about how they will take the policy forward, but the fact that it was contained in the pre-Budget report is a step in the right direction. I am disappointed that the hon. Gentleman feels that giving independence to the Bank of England was a mistake, because I thought that the Conservatives were coming round to that policy.

The good news is that the Chancellor is apparently reconsidering some other Liberal Democrat policies on public expenditure. We have had an inkling that we may see a change in the Government's policy on public expenditure. It may have escaped the notice of some hon. Members, but the Government have paved the way for a major change on spending. The Government told the House that the three-year departmental limits of the comprehensive spending review were set in stone, but they are now less sure. The Chief Secretary seemed to think that the Government had not changed their approach to the CSR, but he should talk to the Chancellor. According to the uncorrected minutes of the Chancellor's evidence to the Select Committee on the Treasury last week, which are now available to all on the internet, the Government have changed their position.

The key question that the Chancellor and I were debating in the Committee involved spending in 2001–02, which will be the third year of the existing CSR, when much of the extra £40 billion that the Government motion mentions will be put in place. It will also be the final year of this Parliament before the general election, and the first year of the new comprehensive spending review. I challenged the Chancellor to say whether the Government would stay within their published expenditure limits in that year. The Iron Chancellor's rather limp reply was that it was the Government's "aim" to meet those limits. He did not say, with his usual robust determination, that the Government would meet the limits.

The impression is of a Chancellor giving himself room to manoeuvre and an escape clause that did not exist when the comprehensive spending review was announced. At that time, he told us how generous he was being and how he would not need to go beyond the spending limits. The Chancellor's reply to the Select Committee was therefore a real shift in position.

I pressed the Chancellor in the Select Committee to say whether he would stick to his comprehensive spending review plans come hell or high water. He could reply only that there was now a "presumption" of doing that, and he went on to say that he wanted to do more for health and education; so we have a Chancellor who is only presuming that he will hit his targets.

Liberal Democrat Members welcome that change and the evident weakening of the Government's position on spending, even though today's motion does not refer to it. The Government have room for an injection of money into our public services, but three matters must be considered. First, will there be a macro-economic effect? Will increased expenditure have a knock-on effect on interest rates? Clearly, no one would want the Bank of England to have to take up the slack and increase rates.

Secondly, what is the fiscal position? Can decisions on tax and spending be afforded? Are the public finances strong enough to take any extra expenditure? Thirdly, what are the politics of the situation? Does the Chancellor want to produce a rabbit out of a hat to please the voters, or does he want to do something to shoot Tory foxes and tease the no-hopers on the Conservative Benches?

Mr. Geraint Davies

Now that it has been disclosed that Neil Hamilton has lost his case, how much more money would the Liberal Democrats lift out of a brown paper envelope to spend in addition to what my right hon. Friend the Chancellor has promised?

Mr. Davey

I am delighted to tell the hon. Gentleman that we shall publish our alternative budget just before the Chancellor publishes the real Budget, as we have for the past decade. My hon. Friend the Member for Truro and St. Austell (Mr. Taylor) and I are already working on it, so we will he able to give a very detailed reply to that question in a few months. I hope that the hon. Gentleman will bear with me until then. [Interruption.]

Mr. Deputy Speaker (Mr. Michael J. Martin)

Order. The hon. Member for Croydon, Central (Mr. Davies) should not talk across the Chamber. Also, the question of Mr. Hamilton has nothing to do with the proceedings today.

Mr. Davey

I return to the three constraints that I listed earlier. The first is very important, although to my knowledge it has not been debated in the House in recent times. The question is whether the Chancellor's loosening of the fiscal stance would cause a knock-on effect on inflation. The answer to that question depends on how one sees growth and inflation over the next few years.

One may anticipate that growth will slow down, as the Chancellor does in his pre-Budget report, and that inflation will stay fairly low. Just yesterday, a member of the monetary policy group said that it was possible that the target may be undershot. If one therefore believes that the outlook is benign, there would be no problem about loosening fiscal policy quite significantly, as the Bank of England would not be forced to take up the slack.

However, I believe that the outlook is not so benign, and that there is real concern about what will happen. I think that the Government have underestimated growth and that the economy is ticking along quite well. The world economy is picking up, the housing market here is very strong and there is strong growth in real incomes—all factors suggesting that the Government's growth forecasts are underestimates. The almost certain corollary is that inflation has also been underestimated.

Mr. Tyrie

That sounds like a boom.

Mr. Davey

The hon. Member for Chichester (Mr. Tyrie) mentions the word "boom", and I am glad that he did. I agree that the danger is that we could return to boom and bust. That would be a real mistake, as there was far too much of that when we had a Conservative Government.

It is very important that we do not let a boom occur, so we need some discipline about the extent of any fiscal loosening that might take place. There is some room to loosen the fiscal restraints but, although we do not have a runaway economy at present, there is clearly insufficient room for a massive tax-and-spend giveaway.

The second constraint on the Chancellor is the state of the public purse. How big is Gordon's war chest? That is the question. Gordon claims that—

Mr. Deputy Speaker

Order. I think that I have spoken to the hon. Gentleman on previous occasions about this matter, but he should know the rules of the House. He should refer to the right hon. Gentleman either as the Chancellor of the Exchequer or as the right hon. Member for Dunfermline, East.

Mr. Davey

I am grateful for that instruction, Mr. Deputy Speaker.

In the pre-Budget report, the Chancellor seemed to think that his war chest was rather healthy, as he predicted a cumulative surplus of £67 billion over the next five years. Earlier, we heard allegations about fiddled figures, and closer inspection of the details shows that the war chest is in fact much larger than that. Adding in reserves and the margins in the departmental expenditure limits gives a cumulative surplus over the next five years of £102 billion.

That is the strength of the fiscal position, even before account is taken of the need for a higher growth forecast, given the likelihood of higher growth. Clearly, the public finances would be even stronger if growth turned out higher than forecast. There is no doubt that the Government could afford to loosen fiscal policy to some extent, but how would that be done? Should the extra money be spent on tax cuts, or on public expenditure increases?

The third constraint on policy is politics. All Chancellors are naturally concerned about the politics of the decisions that they take, so how might politics affect this Chancellor's thinking? On the face of it, this constraint is also rather weak. The Government have a huge majority and a huge lead in the opinion polls. The Tory party is falling apart, so perhaps the last thing that the Chancellor needs to do is worry about the political implications of his decisions. The Chancellor has at least some cash to spare and is free to decide whether his priority should be tax cuts or extra funding for schools, hospitals and the police.

The Chancellor has met Labour's headline manifesto promises on tax, so he could decide to deliver on the public service investment that is needed so desperately. However, I fear that he will not do so. The Chancellor was very uncomfortable when questioned on the tax burden by the Select Committee. It would be a gross exaggeration to suggest that Conservative Members laid any punches on him, but there is no doubt that the Chancellor is hyper-sensitive. He is paranoid about attacks on his policies and is obsessed with disproving all counter-arguments. It is therefore extremely likely that he will succumb to political temptation and cut taxes before the next election, so shooting the last remaining Tory fox.

Mr. St. Aubyn

The hon. Gentleman has made it clear that he believes that there is an optimum level for the tax burden. He harried my right hon. Friend the Member for Charnwood (Mr. Dorrell) for not saying what he thought that level should be, but the hon. Gentleman must know his own preference. Will he say what, according to Liberal Democrat policy, is the optimum level of the tax burden?

Mr. Davey

I certainly do not think that it is 0 per cent., which is the figure to which the logic of the Conservative party and its tax guarantee would lead. The right hon. Member for Charnwood failed to answer my question on that point, but we at least have been clear about our tax policies. Unlike the Conservatives, the Liberal Democrat party publishes alternative budgets and has a very good record about being up front about its policies.

It is possible that, between now and the next general election, the Chancellor will announce a cut in the standard rate of income tax to 20p and a widening of the 10p band. He might introduce such tax cuts just to shoot the Tory fox. That would be a real mistake. Perhaps it illustrates the significance of the defection from Conservative to Labour of the hon. Member for Witney (Mr. Woodward) who was, after all, famed for his tax bombshell campaign in 1992. The Chancellor, not content with stealing the Tories' clothes on tax, wants to pinch their tailor too. The Liberal Democrats have their own tailor, in the shape of my hon. Friend the Member for Truro and St. Austell and had no need of the hon. Member for Witney.

We believe that it would be wrong for the Chancellor to respond to Tory attacks by slashing income tax rates. It is not the country's priority.

Mr. Kidney

It is very decent of the hon. Gentleman to give way. I suggest that there is another restraint besides political judgment—that is, the response of the independent Bank of England and the Monetary Policy Committee to any tax cut or increase in public spending.

Mr. Davey

The hon. Gentleman is exactly right. That is why I talked about the constraint of macro-economic stability in my opening remarks.

There are no real constraints on a targeted, modest increase in public expenditure. There is no doubt that our schools and hospitals need it; our police services certainly need it. Macro-economic stability would not be prejudiced so long as the spending increases were not accompanied by large tax cuts. Public finances are healthy, so the Chancellor can afford to make that extra investment. With the Tories imploding, there is no political need to shoot the tax fox.

The Liberal Democrats hope that the Chancellor has the courage of his deeply held convictions and does not simply thank those working in the public sector, as the last line of the motion says, but gives them his full support by investing in them.

3.32 pm

Shona McIsaac (Cleethorpes)

Listening to all the theories being bandied about in the debate, I am beginning to get an inkling that the Tories have forgotten everything that they did prior to May 1997. Their record was woeful.

At the start of 1997, there was a huge debate and campaign about the future of the hospitals in my area. The Grimsby Evening Telegraph said on 26 April 1997–the Tories had brilliant timing—that Grimsby hospital could be downgraded to a cottage hospital. That was what we were facing—devastation of local health services. Those plans were shelved and considerable extra investment has been made in that hospital. In May 1998, it was announced, thanks to the Labour Government, that Grimsby hospital was to have a brand new state-of-the-art maternity and children's unit. That investment came to £8.5 million.

This is the crux of the debate; never mind the theories about taxation and public expenditure, it is what is done with the money that counts. As I said before, the Tories' record on public expenditure was woeful.

The Tories claim that waiting lists are soaring, yet at my hospitals waiting lists are coming down, thanks to extra investment. They are ahead of target in reducing waiting lists. As the hospitals have confirmed to me, neither is there a problem with out-patient waiting lists. They too are coming down. In addition, NHS Direct was recently launched in our area, and it has been a considerable success. If we compare what was happening in the early part of 1997 with what is happening now, there is a big difference in the provision of health care.

People should be warned about Tory public spending plans. The spectre hovers over us again of hospital closures and of people being forced to go private for all but the most essential health care. If the Tories ever came to power again, what would they get rid of in public expenditure? Would they save £8.5 million by scrapping the new maternity unit in my area? Would they scrap the new renal unit as well? Would they scrap the extra investment in breast cancer care? The Tories must face up to those issues in any debate on public expenditure.

Mr. St. Aubyn

Would the hon. Lady join my campaign for more equitable health service funding in areas such as west Surrey, whose health service provision is being cut to finance some of the improvements in her area? Does she regard that as fair and equitable for the poor and the sick of West Surrey?

Shona McIsaac

Perhaps the hon. Gentleman is just not a very good campaigner. On the south bank of the Humber, local Members of Parliament have secured considerable extra funding for their hospitals. We are excellent campaigners and have good relations with our Health Ministers. Perhaps if the hon. Gentleman were a little less hostile, he might get further in his campaign.

My predecessor in the constituency managed to insert in the Police Act 1997 a provision to change the name of the local police force. That simple name change was estimated to cost £1 million—a sum that would have been far better spent on proper policing and catching criminals in the area. In June 1997, my right hon. Friend the Member for Cardiff, South and Penarth (Mr. Michael) wrote to me saying that he was not minded to implement that part of the Police Act. No doubt if the Conservatives had won the general election, they would have gone ahead with such a change, which would have cost my police force dear. That again shows the difference between what was happening then and what is happening now.

The Government's spending plans have also benefited pensioners, and we accept that more will be done in the future. Some 16,000 pensioners in my constituency benefit from free eye tests and the winter fuel allowance. Some 3,000 of the poorest pensioners are now better off with the minimum income guarantee, and 6,000 pensioners will benefit from entitlement to free television licences.

It is all about people, and the difference that we can make to their lives by putting a few extra pounds in their pockets. At this time of year, when most people's concept of public expenditure is buying Christmas presents, I think that my constituents are probably happy to have a few extra pounds in their pockets. I have received a number of letters from pensioners saying so. Mr. Leeman of Cleethorpes says that it is good news about the winter allowance going up and about the free television licence for those over 75. Mr. Leeman says that he has also noted the free eye tests and the reduction in VAT on gas and electricity. That was one of the most hated taxes introduced by the previous Government, and it penalised pensioners in particular. We should not hesitate to remind people that the Tories introduced that tax and were happy to see it rise to the top level. We have reduced it, and that benefits people on low incomes in particular.

Opposition parties are always coy about admitting that we have increased child benefit. It helps more than 13,000 families in my constituency. If we are doing that in Cleethorpes, we are helping many more families in every constituency around the country. The Tories never mention that. They have said that they are minded to target child benefit at the under-fives. We should not hesitate to remind pensioners of what the Tories are up to, and we should remind every family that voting Conservative in future would risk the loss of child benefit.

Another measure that benefits families is the working families tax credit. Yet again, the Tories are not happy about it. In most constituencies several thousand families will be, on average, £1,000 or more better off every year. We should warn the people—give them a Tory warning, as it were—that they will risk losing that money if they dare ever to support the public spending plans proposed by the Opposition.

We have been particularly strong on education. My maiden speech was about education and class sizes. Schools in my constituency had classes of more than 40 pupils because of the lack of funding the Conservatives gave to the former Humberside county council. Since then, class sizes have come down. North Lincolnshire—one of the authorities that serves Cleethorpes—has reduced class sizes a year ahead of target. We are right to use the motion to praise those in the public services who have worked hard to help the Government to achieve our targets.

The Conservatives have made somewhat barmy pledges. Will they tell my constituents what they would cut in order to meet their education pledges? Will they take back the extra books that we have given? Will they rip out the extra computer equipment? Will they knock down some of the extra buildings? Parents should be told exactly what the Tories would scrap. Tory education spending plans are not sustainable. Teachers' representatives in my area have called them a recipe for chaos. We should warn the people what support for the Tories would really mean for education funding.

We have heard today about the tax burden. Part of it was the windfall levy on privatised utilities. That money is funding the new deal, which has a real impact on people's lives. Unemployment statistics for Cleethorpes are dramatic. The new deal for the under-25s has brought a 73 per cent. reduction in unemployment for that age group. The number of long-term unemployed is down 67 per cent. The overall unemployment rate is down 27 per cent. What is done with the money is what counts. The Tories did not support the new deal, and they have consistently said that they would scrap it. What would that mean for all the people who now have a future? Would the Tories consign them to the scrap heap? The people should be told.

Anyone who dares support the Conservatives in future will run the risk of devastating our health service, reducing funding to our schools, losing jobs and returning to boom-and-bust economics. Pensioners would lose out. The Tories are, simply, fiscally irresponsible.

3.45 pm

Mr. Andrew Tyrie (Chichester)

I should like to pick up on a few points made earlier in the debate. I was astonished to hear from the hon. Member for Croydon, Central (Mr. Davies)—no longer in his place—that the lower the savings ratio is, the better for all of us. The hon. Gentleman suggested that it is a sign that things are going well. Of course, the savings ratio in the United States of America is negative while in Japan it is hugely positive, which must be the evidence to which the hon. Gentleman was alluding. He should realise, however, that saving is a counterpart to investment, and that high-quality investment delivers growth. He should reconsider the relationship between savings and high-quality economic performance before he repeats that remark.

Mr. Edward Davey

The hon. Gentleman is right to suggest that saving is important for investment, but the hon. Member for Croydon, Central (Mr. Davies) was trying to make the point that the savings ratio is determined by many things, not just tax policies. When net household wealth is increasing substantially, as it is in the UK with increasing house prices, it is not surprising that the savings ratio is going down.

Mr. Tyrie

We have been unable to elicit any answer from the Liberal Democrats on what tax burden they would wish to impose. Perhaps the hon. Gentleman will be able to tell us what he thinks the savings ratio should be if we are to have a prosperous economy.

I shall speak briefly about debt and public spending, then about economic management over the past couple of years. On debt, the right hon. Member for Ashton-under-Lyne (Mr. Sheldon)—a former Chairman of the Public Accounts Committee who is also no longer in his place—alluded to what he called the Government's excellent performance in reducing the debt burden and the deficit. He failed completely to grasp the fact that those issues can be considered intelligently only in the context of the business cycle. It is easy to reduce debt and the deficit during an upswing. It is difficult—indeed, usually impossible—to do so during a downswing.

The Conservative record on debt and the deficit—particularly debt—was without doubt the best achieved by any Organisation for Economic Co-operation and Development country over the lifetime of the last Conservative Government. I have the figures, should anyone wish to challenge them. Every other major country increased its debt stock during that period; the United Kingdom enjoyed a net fall. That was an astonishing achievement. The sharp rise to which Labour always alludes was a consequence of the recession in the early 1990s, by which the UK was particularly badly affected.

Dr. Palmer

Is the hon. Gentleman not missing the point? It is certainly much more difficult to reduce debt when one is plunging a country into recession, but the drawback of the previous Government's record was their propensity to plunge the country into recession. An attractive feature of the past couple of years has been that when a recession was widely predicted by the hon. Gentleman's Front-Bench colleagues, it did not happen, and we were able to reduce debt all the same.

Mr. Tyrie

The economy was more volatile in the 1980s and 1990s and the peaks and troughs were larger. Let me offer the hon. Gentleman one core fact that demonstrates the transformation in the performance of the British economy, on the trend growth line that we want to improve above all others. During the 1960s and 1970s, the British economy grew at about two thirds the average annual rate of the economies of our major European competitors. During the 1980s and 1990s, however, the British economy has grown slightly faster than those of our major European competitors. We have seen greater volatility, deeper recessions and higher peaks, but that has delivered higher overall growth rates.

Certain fundamental things have happened. One was the deregulation of the financial markets, which unleashed a reallocation of capital in this country and achieved much greater efficiency in the use of capital. That contributed enormously to economic growth. However, that same deregulation made the conduct of monetary policy difficult in the mid-1980s. Mistakes were undoubtedly made; those who participated in policy at the time freely admit it. It contributed to a subsequent deeper recession than we would otherwise have had, but the long-term benefits of the deregulation are there for all to see. We are benefiting from it today.

The hon. Member for Wellingborough (Mr. Stinchcombe), who is also not in the Chamber-he is probably having a cup of tea, too—talked extensively about the £40 billion extra spending that Labour was providing, and what a good thing that was. I certainly support increases in health spending, for example, where it is affordable in the long run; but just as important as increases in spending are increases in performance that arise from the way in which that spending is used. There is no earthly point in putting a lot more money into one particular sector unless it can increase output and delivery as a consequence.

Ms Sally Keeble (Northampton, North)

Does the hon. Gentleman agree that the Government have, if nothing else, set close performance targets throughout the public services, and that his party has been at the forefront of criticising the Government for interfering by doing just that: setting clear targets on how money should be spent and on performance improvements that the public expect?

Mr. Tyrie

Merely setting a performance target does not take one far. To achieve higher productivity in the public sector, we need to create a system of incentives that is as near as possible akin to that in the private sector, where, as we all know, capital is generally better allocated. That is partly what Labour has moved away from.

On the health service, for example, the figures are indisputable. Again, I have them with me if hon. Members want to challenge me. Output measures in the health service show clearly that the introduction of the internal market increased productivity in the service. Preliminary evidence appears to suggest that changes to the internal market since 1997 have led to some diminution in the trend improvement in productivity.

That is an example of how a change in the structure of policy can reduce the effectiveness of spending. I am as concerned to see increases in outputs in the health service as a result of improvements in the management of the system as I am to see more money put in.

Ms Keeble

Will the hon. Gentleman give way?

Mr. Tyrie

I will not give way again on that point.

It is a fact that the health service is a huge success story. It is a remarkable institution. In terms of output measures—that is, morbidity and mortality rates—it delivers health care that is comparable with that of all our major competitors, but it does it at about two thirds the average cost per capita. That is a remarkable achievement.

Let us compare the position here with that in the United States, for example. Spending there is about three times more in absolute terms per capita, but morbidity and mortality rates here are broadly comparable, so we see that the health service is a remarkable success. We have to examine carefully why that is and ensure that reforms and extra money in the health service enable what we have achieved to be maintained.

What concerns me is that there is a real risk that structural changes in the health service—for example, the decision to end fundholding—may reduce allocation efficiency and that we may find that we no longer achieve such good value for money for every pound spent.

Shona McIsaac

The hon. Gentleman mentions the United States of America. Of course, in the United States, most people pay thousands of dollars a year for private health insurance and purely publicly funded hospitals are in the minority. Is he saying that that is the model that the Tories will use for their health policy? After all, his party's health policies show that it wants to move more towards privately funded health care. Is he suggesting that we will have a model such as the one in the United States?

Mr. Tyrie

Oh dear, oh dear. I thought that I had made things reasonably clear, but I will have another brief go. I am saying that the health service, for a variety of reasons that I will not bore the House with now, has been an extraordinary success. It has been one of the few examples of an extraordinary public sector institution doing very well and continuing to do well, while almost all other public sector institutions, or a very high proportion of them, started to do badly some time after they were set up, during or just after the war.

My remark about the United States pointed in exactly the opposite direction. I said that we should be wary of implanting the American structure of health delivery. We may have something to learn from the Americans in some areas, but they have a lot to learn from us.

Education is an example of a sector where we spend about the same as comparable countries —for example, France—but have far worse outputs. For example, levels in maths and science at the age of 13, which are measured in all OECD countries, are far worse in the UK. In fact, we are near the bottom of the performance league in maths and science at age 13, even though we spend about the same as comparable countries that do much better, such as France.

I thought that it might interest the House to know that the countries that have the highest performance in maths and science at the age of 13 spend the least. Hungary comes top; Japan does very well. The country that spends the most on secondary education comes almost bottom in the OECD maths and science league: the United States of America. That is an important point to bear in mind when considering education funding and productivity.

The Government have said how marvellous it is that so much more money is being poured into health and education. The point that I am trying to make is that that is only half the story; indeed, it is not even half the story. It is how that money is used and to what effect that count.

Shona McIsaac

What about literacy and numeracy hours?

Mr. Tyrie

Those are forms of regulation and direction from the centre which I am not convinced will do the job. We have to look carefully at the structure of education, perhaps even before we look at further funding. As I said, countries that spend less seem to do better and countries that spend more seem to do worse—and by a huge margin.

For those who doubt that, I strongly recommend, if they can bear it, that they look at the OECD publication "Education at a Glance". I am afraid that they cannot really take it in at a glance: it is several hundred pages of dense statistics with some explanatory tables, but I am sure that it will go down very well when the family is becoming a little stressed over Christmas. Reading "Education at a Glance" will do everyone the world of good.

I shall make some general points on economic management. Labour Members probably will not want to hear the fact that the Government were elected partly because they promised not to change our policies. Labour promised to stick with our policies; they made firm commitments not to increase taxation and said that they would implement Conservative spending policies—not merely on aggregate but Department by Department. They stuck to the spending promise, more or less, but they broke the tax promise—the subject of several recent exchanges in the House. On monetary policy, they decided to become more Catholic than the Pope by making the Bank of England independent and handing it the policy.

During the past year and a bit, there has been some slippage from what the public thought would occur. They thought that there would be continuity of the policies that had brought success. I referred earlier to the statistics on long-run economic success that started in the 1980s and 1990s after 20 years of decline. Those statistics had got through to the British electorate. They were aware that the economy was no longer a basket case and that they no longer lived in a banana republic in the making, but in a reasonably prosperous country—one that is comparable to most of the top European countries.

The electorate were prepared to vote for a change of Government only if they were sure—

Mr. Andrew Love (Edmonton)

Because the Conservatives were awful.

Mr. Tyrie

It might be true that the Conservatives gave the electorate the odd reason for not voting for them. However, voters were prepared to take that risk only once they were sure that there would be continuity of economic policy. The clearest example of that was in 1992 when the economy was in something of a mess. The electorate overwhelmingly rejected Labour, because Labour had not yet learned its free enterprise lines.

The Government have slipped away from the policies that they were elected to implement. There have been sharp spending increases, but insufficient clarity as to how they will be paid for. There have been sharp increases in taxation. A nonsense rhetoric of boom and bust has developed. When it began, I assumed that it was an election slogan or mantra, but I have become rather worried that some Treasury Ministers—from whom I exclude the Financial Secretary to the Treasury—have come to believe it. If they really believe all that stuff about putting an end to boom and bust, that would be most worrying, because, as we are all aware, the business cycle has been with us for hundreds of years—certainly since writing on economics began. At present, we are probably experiencing an upswing, but there will be a downswing. I do not know when it will occur—if Wall street crashes, it may come next week, or it could come in a few years. However, there will be a downswing; I am absolutely sure of that.

I am also worried that, although Labour have learned the language of the supply side, they have not implemented it—they have learned the lines, but their policies show that they are not convinced of them.

Mr. Letwin

My hon. Friend raises an interesting point as to whether Treasury Ministers—I second his exemption—are beginning to believe that rhetoric. In that context, was it not pretty odd that we received no sensible answer to my questions to the Chief Secretary about what the economic cycle is, where we are in it and when the current cycle will end?

Mr. Tyrie

I agree with my hon. Friend. I gave a tentative answer to those questions. I have been putting those questions to Treasury Ministers for more than two years, but I have still not received an answer. Chief Secretaries come and go; one or two of them made a stab at an answer—perhaps the fact that they did so was one of the reasons the Whips decided to move them on. The point is basic and obvious; eventually the Government will have to acknowledge it. I cannot imagine why they are digging themselves so deeply into this hole.

I pointed out that Labour had learned their supply side lines, but had not implemented a policy. I shall not go over all the points at which regulation on business will undoubtedly reduce economic performance—for example, the social chapter, the minimum wage, the working time directive, the increases in business taxation and much else besides. I am concerned because I have the sense that growth is being taken for granted; there is a failure to grasp the importance of keeping a close eye on what creates economic prosperity. That is redolent of the 1960s. The great mistake of social democrats in the 1960s was to take growth for granted and to assume that the most important issue was how it could be distributed. Indeed, it was argued that redistribution would generate further growth through infinite supplies of extra funding to education.

Mr. Letwin

The Swedish model.

Mr. Tyrie

Indeed. Even if we doubled education spending, I am not convinced that there would be a sharp improvement in education performance.

I have noted my concerns on tax, spending and the supply side. I am also worried about accountability on the economic numbers. There has been a fundamental change to accounting principles. There has been an increase in off-balance sheet finance. There has been a huge number of changes of definition. I shall not bore the House by listing them all, but it is well worth reading some of the information produced by the Library. Those of us who had at least a vague understanding of these matters now find them extraordinarily difficult to grasp. We have such concepts as "annually managed expenditure", "departmental expenditure limits", "public sector current balance net investment", "general government net borrowing", "public sector net borrowing", the "net cash requirement" and the "total managed expenditure—TME". There are a range of such phrases; it requires considerable thought to work out exactly what they mean.

In the past, the Treasury's flagship publication—the Red Book—had chapters with clear headings, such as "Income Tax", "Business Tax Measures", or "Excise Duties". People had a vague idea of their meaning. However, if we want to find those topics in the current Red Book, we have to look under headings such as "Raising Productivity", "Increasing Employment Opportunity", "Building a Fairer Society", or "Environmental Measures". Anyone who wants to work out what is being done and has an understanding of previous Red Books would find it extraordinarily difficult to read the current one.

Mr. Ruffley

Does my hon. Friend deprecate the way in which new Labour, Millbank jargon and rubbish have been introduced to what should be a serious, technical Treasury publication?

Mr. Tyrie

I agree that the Red Book should be a serious Treasury publication. I am sure that many people understand these matters better than I do, but as I helped a little to draft previous Red Books in the 1980s, I have an idea of what they used to contain. We used to listen carefully to the comments of the Select Committee on the Treasury as to how the Red Book could be improved each year. The current Red Book is not a satisfactory document to have been produced by any Government as an explanation for their Budget proposals. I hope that the Government will not repeat this presentation-oriented effort, but will try to stabilise their definitions so that we can monitor the economy more carefully.

I have referred to my anxiety about various matters, such as the rhetoric about ending boom and bust, the meddling with the accounts—partly for presentation and partly from the desire to try something new—and the introduction of meaningless economic rules, such as the golden rule. I have met no one who believes that the golden rule has the slightest economic merit. Apart from members of the Labour party, no one believes in it. The German Government used to have a golden rule, but in effect they have scrubbed it. The Bundesbank has rubbished it—no one believes that it has any real meaning or effectiveness. I worry that all the measures and the rhetoric that the Government have put out are becoming a substitute for thinking through the key issues that economic managers should address in the 21st century.

I do not expect that the Minister will have all the answers, but I wish to raise a few matters that he might like to think about. For example, do the Government accept that the process of globalisation, particularly in capital markets, is likely to lead to a greater amplitude in the business cycle rather than to the end of boom and bust? There is a strong argument to suggest that greater liberalisation of capital markets and the introduction of many new financial instruments will have that effect.

On the Bank of England's independence, much more thought must be given to the increase in weight and importance of fiscal policy that the granting of independence on monetary policy triggers. Again, much greater clarity on the meaning of the published numbers is required if we are to build market confidence.

Mr. Kidney

While the hon. Gentleman is on the subject of the Bank of England, will he give his view on whether it should remain independent in the future?

Mr. Tyrie

Since the mid-1980s, I have held the view that Bank of England independence has many advantages. I held that view when I was in the Treasury and I made my view known publicly as soon as I left the Treasury. I also made my views known when I spoke in the House on the debates on the Bank of England Act 1998. However, I do not think that the way the Bank of England has been made independent is adequate. Further reforms are clearly needed. The length of appointment of members of the Monetary Policy Committee is ridiculously short, at three years. Several other changes are also required before the bank's reform is adequate.

The Bank of England's independence has not been tested. It will be tested only when we have a recession or the next downturn, which according to Ministers will never come. When the next downturn comes and interest rates are jacked up dramatically, that is when we shall find out whether the bank's independence is what it is cracked up to be.

I have a few more questions for the Minister. I should be interested to know whether the Government are giving any thought to the fact that borrowing is not now taking place in the spot market or the short-term interest rate market, but is increasingly taking place further down the yield curve with fixed-rate mortgages and much fixed-rate and foreign currency lending by businesses. Have the Government given much thought to whether interest rates can continue to do the job that has traditionally been accorded to them in the conduct of monetary policy and the control of inflation, in an era, to which we might be moving, when people do not think about the price of money today but about its price right across the yield curve? People with fixed-rate mortgages do not think about the matter in such terms, but they are increasingly prepared to take the risk of borrowing money at a certain rate for five or even 10 years.

Will the Government also give thought to whether their inflation target for the Bank of England is the right one? I do not mean that in terms of whether the target should be 2, 2.5 or 3 per cent. I agree that the Government were right to go for a symmetrical target and that the European central bank was mistaken in not doing that. Do the Government have a view, however, of whether asset price inflation should be taken into account in the setting of monetary policy? If they do, to what extent do they think that their view should be communicated to the Bank of England, and how do they propose to communicate it?

By asset price inflation, I mean not only house price inflation, but asset price inflation more widely, including the stock market. There is a touch of asymmetry in that regard. Whenever there is asset price inflation, central bankers talk about irrational exuberance and of how things are going a bit over the top. That is what Alan Greenspan said about Wall street some time ago, when it was at only two thirds its current value. However, central bankers do not say the opposite when asset prices are falling. They do not say that equities are absurdly cheap and that we should buy them now. There will need to be a rethink in the 21st century about how the monetary policy target should be defined.

Have the Government given any thought to the effect that new technology and the internet could have on the clearing bank system? If, as Mervyn King suggested in a recent speech, people will no longer need to use a clearing bank to achieve settlement, we could lose control over monetary policy because we would lose a crucial lever. I do not think that the Government have given any thought to that; I have not seen anything on it in the public domain. We may have created an independent central bank at just the time when central banks are becoming rather less relevant.

I wish to discuss one other subject and then I promise to sit down. Public spending control is another issue that the Government have not thought through very carefully. Globalisation will almost certainly increase income dispersal. The most successful in an economy will get even better rewarded and some at the bottom may lose out as the result of global competition. I have not heard the Government say anything on that subject, but I would be interested to know whether they have thought through the effect that globalisation will have on pensions policy and the long-term social security burden.

What is the right response to my questions? I shall not try to provide the answer to any of those major policy issues, except to say that there is a need for a more transparent economic policy than we have now. The description of fiscal policy that is given in the accounts is not adequate any more. It was difficult to understand before, but it is now frankly impossible to comprehend. I strongly advocate—and I have done for five years—the creation of a fiscal policy committee, which would be a counterpart to the Monetary Policy Committee. With assistance from the Office for National Statistics, it should have the job of policing the definitions in the accounts and the crucial task of vetting the forecasts to smoke out ropy assumptions.

The people who have considered these issues closely agree that the National Audit Office's auditing of forecasts is little more than a joke. I suspect that the NAO would privately agree. It spends £20,000 or £30,000 on the job, but countries that have such vetting of forecasts spend £500,000 or more on it. It is ridiculous that the number of man hours put in by the NAO could be considered remotely as serious vetting of the accounts.

The Government should be required to publish their estimates of where we are in the business cycle. Of course, that will be only one view, and it could be assessed by other commentators. Long-run liabilities, such as pensions, should be added to calculations of the debt stock. That would also bring much greater transparency to the accounts.

I shall conclude with a general point. If, just before Christmas, the Government have the intelligence to admit that there might conceivably be a recession one day and hence that we have not entered a world in which boom and bust have come to an end for ever, they will do themselves a huge favour. However, if the Minister tells us£I suspect that he will £that the Government are putting an end to boom and bust, Conservative Members can take heart from the fact that we know that we have been given a huge piece of ammunition for when that recession comes.

4.19 pm

Ms Margaret Moran (Luton, South)

I was almost losing the will to live as I listened to the contributions of some Conservative Members£particularly when they claimed that the Labour Government are simply adapting the previous Government's policies. I should like to use the opportunity of this debate on public spending to outline one of the areas in which this Government most clearly differentiate themselves from the previous Government£our objective of using public spending to tackle the legacy of poverty and social exclusion bequeathed to us after 18 years of Tory Government.

Since 1979, poverty and inequality have increased dramatically. Almost a quarter of the UK's population live below the poverty line, and one third of those are children. Communities are divided and workless, and in some instances have been so for two generations. The Chancellor's pre-Budget report set out clearly the principles that underpin our approach, and they could not be more different from those articulated by Conservative Members, who do not seem to be interested in poverty and social exclusion. They were certainly not interested in those problems during the 18 years of their misrule.

The pre-Budget report set out the Chancellor's target of a strong and productive economy in which the potential of every individual can contribute to and benefit from growing economic prosperity. By tackling the Tory legacy of boom and bust, the Government now have borrowing under control, and we have low inflation and low interest rates. Our major achievement is that 700,000 more people are in work. We have a target of full employment, which will ensure economic opportunity for all.

Mr. Letwin

I am interested to know whether the disease of which my hon. Friend the Member for Chichester (Mr. Tyrie) spoke has spread to the Labour Back Benches. Does the hon. Lady genuinely believe that there will never be a recession under a Labour Government?

Ms Moran

I genuinely believe that we have introduced economic stability, in sharp contrast to two of the most severe recessions, which harmed people in my constituency and were responsible for one business going bust every three minutes of every working day when the hon. Gentleman's party was in power. That is not an experience that we will repeat.

As a result of the economic stability achieved by this Government which families and businesses in my constituency so desperately needed, we are now able to invest in our key public services and launch a crusade against poverty. That is already making a difference in constituencies such as mine, where youth unemployment has fallen sharply. The health action zone is targeting health resources in areas of greatest need, such as my central wards, where there are high levels of heart disease and child mortality.

In Luton, schools such as Wigmore primary, Lady Zia Wernher and Cardinal Newman have benefited from public spending and record levels of capital investment, allowing us not only to improve the fabric of the schools but to increase the number of classes and reduce class sizes. Major building works are under way at Luton and Dunstable hospital, where we will have updated wards and a new accident and emergency service. That is just a flavour of some of the effects of the additional £40 billion of spending on public services which the Government have achieved in just over two years, in sharp contrast to the dismal record of cuts during the 18 years of Tory Government.

Mr. St. Aubyn

Will the hon. Lady explain why, if so many extra resources are going to the health service, the accident and emergency unit at the Royal Surrey County hospital in Guildford is under threat of closure because of her Government's policies?

Ms Moran

I know that the major injection of money—£40 billion—into health and education is making significant improvements to health in my constituency and others throughout the country. I am sorry that the hon. Gentleman's constituency seems to be less effective in achieving those results.

Mr. St. Aubyn

Is the hon. Lady admitting that her Government are conducting a policy of political vindictiveness against those parts of the United Kingdom that dare not to vote for her party?

Ms Moran

I shall respond to that less-than-coherent question simply by saying that I am proud to be a member of a party that is targeting resources on the basis of need and tackling poverty and social exclusion.

Ms Keeble

Does my hon. Friend agree that it is an indictment of the Conservatives' management of the health service that when they left government, they left a deficit of £2.9 million in West Surrey health authority£the area that the hon. Member for Guildford (Mr. St. Aubyn) is now bleating on about?

Ms Moran

My hon. Friend's point eloquently illustrates the economic incompetence of the previous Government, who left us with record debts and with poor services that had suffered from consistent cuts over 18 years.

We are now looking to the second comprehensive spending review, and I am proud that the Government have promised that there will be further increases in the amounts available for health and education, which will move further towards achieving our target of creating a fairer society by tackling inequality and poverty. The most difficult test, however, is whether, at the end of our term in office, we will be able to say that we offered opportunity to the very poorest and most socially excluded, because that task is infinitely more complex.

In the central wards of my constituency not only do families suffer high levels of child mortality, but the unemployment rate among black and Asian men is four times higher than the national average, and a third of housing is unfit or below acceptable standards of fitness. Around £50 million is needed to tackle our housing problems in Luton alone.

Before the Chancellor gets his pen out in the new year and does his public spending sums, I shall suggest a few ways in which we can make even more effective use of the additional resources going to our poorest neighbourhoods. First, we need to invest further in our housing stock and to streamline housing finance to enable us to make the most effective investment decisions, which will bring sustainable benefit to the communities who need it most. Secondly, we need a more radical approach to helping communities to help themselves. Thirdly, we need to reform the way in which we deal with public expenditure, to ensure that we achieve maximum impact, and it is important that every anti-poverty pound does just that.

I am aware that housing finance is not often discussed in this place. A subliminal anorak alert goes off when it is mentioned, and the sane flee the Chamber. However, we will not tackle the deep-rooted problems of poverty that we have inherited unless we reform housing finance and tackle the high levels of continuing unmet housing need and the £20 billion backlog of disrepair, which we also inherited from the previous Government.

It is well known that housing benefit needs to be reformed to tackle the poverty trap, and I shall say little on the subject—save that long-term housing policy decisions are needed. Housing benefit spending is decreasing except in the private rented sector, where rent allowances are projected to rise from over £5 billion this year to £8 billion in 2002, which is, again, largely a legacy of the previous Government's policies, which moved housing investment away from bricks and mortar and into personal subsidy.

There are two ways for the Chancellor to achieve value for money and increase equality. The first is to link housing benefit spend to housing standards. Secondly, the Chancellor needs to address the problem of low-income home owners, who at the moment do not receive help with their housing costs. Certainly in my constituency—once dubbed the mortgage misery capital of the country—there are as many low-income home owners in need of housing support as there are people renting.

The action that this Government have taken to tackle housing benefit fraud is warmly to be welcomed. There is more to be done, but such action is none the less in sharp contrast to that of the previous Government, who removed financial incentives from local authorities that were determined to tackle housing benefit fraud. We should hear fewer pronouncements from the Opposition Benches, since the Conservatives' record in tackling housing benefit fraud was nothing short of lamentable.

This Government recognise that we cannot tackle poverty and social exclusion without tackling housing need. So, first, I want to say thank you to the Government and the Chancellor. Announced, but little noticed last week, was the housing investment programme of £2.1 billion—a 48 per cent. increase in housing spending to tackle the £5 billion backlog of disrepair that we inherited as a result of the previous Government's savage cuts.

Investment in housing in 1998–99 was double that in 1996–97. That is a result of this Government's delivering on the capital initiatives project—one of their very first schemes and a clear demonstration of their commitment to housing investment. As set out in the comprehensive spending review, we are now on target to spend an extra £4.7 billion this Parliament on improving our housing conditions and tackling housing need.

In addition, there have been very important changes, recently debated, on resource accounting, which begins in April 2001 and which could add a further £2 billion to housing revenue accounts in England in the first year and increases in line with inflation thereafter. This Government are wisely earmarking that money for tackling the backlog of disrepair and maintaining the value of a significant national asset—our housing stock.

In all of that, wiz have made a significant start in tackling the problems of unmet housing need and disrepair, but I should like to tempt Santa Brown, the Chancellor, to consider a possible millennium present to every family in poor housing. He could release for housing investment some of the £10.2 billion surplus that has accumulated in housing revenue accounts across the country. The Treasury accumulates about £1.4 billion a year in such surpluses, and a small contribution from that would go a long way to an excellent millennium present for many families who are in poor housing or, indeed, homeless.

I also ask the Chancellor to consider a bonfire of the regulations surrounding housing finance. With the introduction of resource accounting, virtually all local authorities' capital assets must make a return and they will not be able to spend past free capital. That therefore removes some of the need for the vast array of rules governing spending, borrowing and subsidy on housing revenue accounts. As a result, normal rules of financial prudence would apply to the management of housing revenue accounts and the bamboozle factor of housing finance, so beloved of people like me in my former career as a housing professional, would be removed.

Such moves would allow greater transparency for tenants, reduce bureaucracy and, most important, facilitate much clearer and cheaper decisions, involving fewer consultants, on where to spend money, on housing transfer, on public-private partnerships and on the retention of housing stock.

At the same time, we must review the general needs and the housing needs indexes—the systems that allocate housing resources, which are based on several factors many of which appear to work in opposite directions. In summary, we urgently need a more flexible framework that will better enable us to target areas of greatest need and solve local housing problems.

That brings me to a further point: tackling poverty and social exclusion is not just about unlocking more public money, but requires a revolution in the relationship between state and citizen and between central and local government. It is no coincidence that the poorest families are locked in social housing estates—partly because of allocation and benefit rules, which we much address, and partly because of lack of opportunities.

More than a third of social housing residents have weekly incomes of less than £100 a week and, according to a recent Joseph Rowntree Foundation report, their unemployment rates are double those of people with other tenures. That is why it is so important that, if we want to address the most deep-rooted pockets of poverty, we must tackle social housing. I ask the Government and the Chancellor to look boldly at new policies such as tax incentives to encourage greater flexibility in the housing market and greater tenant control of social housing.

We need genuine, bottom-up community solutions to local problems. I think that the Government are committed to doing just that. That is why I welcome the introduction of new deal communities. Luton was one of the areas selected as a pilot. The scheme will greatly benefit local housing and job prospects.

If we are to tackle the worst aspects of poverty and social exclusion, we must also reform ourselves in this House. There are certainly areas in my constituency that are receiving unprecedented funding through various Government initiatives—zones, new deals and pilots too numerous to mention. If we are to make the most effective use of all the resources provided for our communities, we must ensure an intermeshing of all those zones and pilots.

We also ought to look in the comprehensive spending review at our funding framework. Government still operate in spending silos, and that makes it all the more difficult, particularly at community level, to effect joined-up action. We need much greater integration of budgets across the public sector, based not so much on departmental silos but on outcomes and areas. I know that we are making that move, but perhaps we need to do so more speedily.

I have listened to Conservative Members' arguments and can only conclude that they are not aware that this Government are making a major impact on constituencies like mine through increases in public spending—the £40 billion going into health and education, the new deal, which has reduced youth unemployment, the working families tax credit, which has put an extra £17 a week in the pockets of Luton families, and the national minimum wage, which has lifted many of those families out of poverty.

I am angry even so, because only now are Luton families recovering from the devastation of the Tory decades—from record repossessions; from record business failures; and from record poverty, which increased during their term in office.

Mr. Ruffley

It is all very depressing.

Ms Moran

As we hear, the Conservatives have learned nothing. As we have heard in this debate, they would not only return Luton families to the misery that they endured during the Tory decades, but scrap the new deal, the working families tax credit and the national minimum wage, which have benefited Luton. The Conservatives believe that our public spending is reckless and irresponsible, and would instead substitute their nonsensical tax guarantee and attempt to privatise our health service.

I am proud of this Government's record on public spending, and of the further spending that will be forthcoming. I warn Luton families that the Tories have learned nothing from their decades in power. Families in my constituency should look to this Government to increase their opportunities.

Several hon. Members

rose—

Mr. Deputy Speaker

Order. Before I call the next hon. Member, I should say to the House that I understand that the winding-up speeches will start at 6.20 pm. I have no powers to instruct anyone, but there are 11 Back-Bench Members who wish to speak. As this is the last debate of the year, it would be nice if everyone could get in, but I am in the hands of the House.

4.40 pm

Mr. David Ruffley (Bury St. Edmunds)

In support of the amendment tabled by my right hon. and hon. Friends, I draw the attention of the House to the lamentable and discourteous performance of the Chancellor of the Exchequer at the Select Committee on the Treasury last Tuesday. He did not do very well, particularly from Mr. Alastair Campbell's point of view. He managed to elicit from the Daily Mail the next day a headline to the effect that the "Tax burden is going up".

We all know that that is the case, but we had the unedifying sight of spin doctors from Millbank scuttling around, trying to tell various newspapers that taxes had not gone up at all and that they were falling. They were trying to say that black was white.

When I heard of all that nonsense going on, I was reminded of the words of Charles Henry Grosvenor, the well-known Republican Congressman of the 19th century, who said: Figures won't lie, but liars figure. That tells us all that we need to know about the Labour party and the way in which it conducts business when it is dealing with the truth and the figures in respect of fiscal policy and taxes.

Mr. Love

rose—

Mr. Ruffley

I will give way to the hon. Gentleman, with a due sense of dread and anticipation.

Mr. Love

I thank the hon. Gentleman for giving way. The amendment that he supports calls for increases in public expenditure and, at the same time, reductions in taxation. Is that credible?

Mr. Ruffley

I am sorry that I gave way. The hon. Gentleman should have listened to the excellent speech from my right hon. Friend the Member for Charnwood (Mr. Dorrell), who made it perfectly clear—not a difficult point to grasp—that one can cut non-essential and, indeed, wasteful public expenditure at the same time as increasing real-terms spending on the things that we care about, such as schools and hospitals. If the hon. Gentleman had been listening properly, he would know that, for many months and even years, we have been saying that that can easily be achieved—more expenditure on the things that we care about and less on the things that are wasteful.

Let me continue my odyssey on Labour tax policy. We must examine what the Chancellor said in the Select Committee. He was economical with the actualité. I must keep within the bounds of parliamentary language, Mr. Deputy Speaker, as you would expect me to do.

I wonder whether hon. Members can guess how many times the Chancellor of the Exchequer last Tuesday refused to answer a simple question about the difference between the share of gross domestic product taken by tax in 1996–97—in other words, the tax burden that he inherited in his first year—and his projection for 2001–02, the last year of this Parliament. He refused to answer that simple question not once, twice or 10 times, but on no fewer than 19 occasions. It was a lamentable performance.

I shall take the liberty of reading out for the record the figures that the Chancellor was too coy to acknowledge last Tuesday. They are his own figures, not Conservative central office figures or House of Commons Library figures. I quote from the Green Book, as Labour Members know it, or the pre-Budget report, PBR, from November. In it, we can discover the key information.

The tax burden that Labour inherited in 1996–97 was 35.3 per cent. On the Chancellor's own figures, the outturn for 1998–99, the next year, was 37.4 per cent, the year after that 37 per cent, then rising to 36.8 per cent.—[HON. MEMBERS: "Falling."] and 37.2 per cent.

The illiteracy, economic and otherwise, of Labour Members is astonishing. If they cannot tell the difference between the 35.3 per cent. that they inherited, and the tax burden in the last year of this Parliament, 37.2 per cent, they should not hold the office that they hold. They should start reading the material that their own Ministers produce. [Interruption.]

I thought it important to get that on the record. The maundering and muttering from Labour Members discloses that they do not know the truth when it stares them in the face. We should look at a further set of figures, produced by the Office for National Statistics. On the key tax burden test of net taxes and social security contributions as a share of GDP, we see that, for every quarter since the Government came into office, the tax burden has been higher than that which they inherited from my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke).

That needs to be emphasised, because we believe in having an honest debate about taxation. Judging from my mailbag, my constituents also want an honest debate. The real mistake that the Chancellor made—he made quite a few last Tuesday—was to answer in the following terms, when he was, for the 17th or 18th time, asked whether the tax burden had gone up since 1996–97. He said: We made only a number of promises on tax when we came into power and one … of them was not in relation to the tax burden. Why would the Chancellor mouth such a defensive line, if the tax burden was stable, or if the tax burden—

Mr. Deputy Speaker

Order. The hon. Gentleman goes beyond the conventions of the House. The Chancellor does not utter lies. No hon. Member utters lies.

Mr. Ruffley

With the greatest respect, Mr. Deputy Speaker, I said "line". I think that the record will show "line".

Mr. Deputy Speaker

My apologies for picking the hon. Gentleman up.

Mr. Ruffley

The Chancellor is guilty of many things, and being economical with the actualité is but one of them. [Interruption.] If hon. Members want to make interventions, I am happy to take them, pathetic and dismal as they are likely to be. However, I repeat that the Chancellor said that the Government had not made a promise about the tax burden. Why would he say that if the tax burden had decreased or been stable? The press rightly deduced that the Chancellor uttered those words because the tax burden had become heavier, as the PBR shows beyond doubt or peradventure.

Mr. Letwin

Does my hon. Friend agree that there is another reason for the Chancellor's defensive line? In 1996, the Prime Minister told the Financial Times that there would be no increase in taxation at all.

Mr. Ruffley

My hon. Friend makes a typically powerful and accurate point. The Prime Minister used those words and my constituents—and, I am sure, my hon. Friend's constituents—have observed that the Labour party says one thing and does another; they understand that £40 billion in stealth taxes has been imposed on them during the Chancellor's tenure.

Our astonishment at the Chancellor's refusal to acknowledge that the tax burden had increased when his figures demonstrated otherwise was highlighted by The Guardian among the many other newspapers that gave him a bad write-up the next day. The Guardian reported that the Chancellor had conveniently left out Labour's first year in office, the year when the tax burden went up sharply as a result of Mr. Brown's early fiscal tightening. It was all a fairly unedifying spectacle. It went on to refer to a half hour of wriggling and squirming by the Chancellor before the Select Committee.

We do not have to look far for the reasons for the Chancellor's obfuscation. Tax is a potent issue for voters. The Chancellor understands that he cannot admit—in public or otherwise—that the tax burden has increased because he knows the damage that the Government will sustain when that is widely accepted. Conservative Members will pursue that between now and the next general election, and beyond.

Dr. Palmer

I am confused by the hon. Gentleman's comments. He tells us that the public are aware of what he alleges are tax increases; he also tells us that the public do not know about them. Which view is correct?

Mr. Ruffley

The public know that the tax burden has increased after last week's Treasury shenanigans and the truthful reporting that followed the Chancellor's dismal performance. However, the full magnitude and range of stealth taxes—on personal pensions, mortgage tax relief, married couples allowance—will become known and the public will gradually understand that they are paying more tax across a range of activities. The full force of our argument will be developed in the weeks and months ahead.

It would not be so bad if the tax burden figures in the pre-Budget report told the whole story, but they do not. The tax burden is greater than the published figures suggest for two reasons. The first is the fiddling of the working families tax credit and the way in which it is scored. Under the European system of accounts 95, working families tax credit—which is simply rebadged family credit—scores as public expenditure. The only way in which working families tax credit could be scored as negative taxation is if the benefit to individuals did not exceed the amount of tax that they pay. The scoring of negative taxation by the Chancellor cannot be justified under ESA 95. It should be scored in the Red Book and the PBR as public spending. Yet, in contravention of ESA 95 procedure, the Chancellor scores it as negative income tax. That has the effect of making the tax burden appear to decrease. That is the first fiddle, which artificially deflates an increasing tax burden.

The second fiddle relates to the assumption that the Chancellor makes about excise duty increases. With a great fanfare, he said that he would not increase excise and road fuel duty by 6 per cent. annually—it could be anything less than that. When I asked him in the Treasury Committee what assumptions he had made in his projections for increases in road fuel duty, he said that they related to the retail prices index and inflation only. The problem is that if an increase is anything over inflation, we are looking at an even bigger tax burden than that published in his November pre-Budget report.

That raises another interesting technical issue, on which I genuinely seek the views of the Chief Secretary and those on the Treasury Bench. The code for fiscal stability, which was published in November 1998, is an important document—do not get me wrong—and page 9 clearly states: Every economic and fiscal projection — which would include the PBR— contained in any report published under this Code"— which of course such documents are, should give— so far as reasonably practicable … a material impact on the fiscal outlook and, b. where the fiscal impact of these decisions and circumstances cannot be quantified with reasonable accuracy by the day the projections are finalised, these impacts should be noted as specific fiscal risks. If the Chancellor is not quantifying what road tax duty increases might be, we have a prima facie case of a specific fiscal risk that should be flagged up. It has not been flagged up. That technical question is giving some commentators cause for concern, and I hope that the Treasury will do the House the courtesy of answering that specific point.

Mr. Geraint Davies

Will the hon. Gentleman give way?

Mr. Ruffley

I am more than happy to give way to the hon. Gentleman, who is an assiduous intervener, although not to much effect these days.

Mr. Davies

On fiscal risk, the hon. Gentleman is in favour of the tax guarantee of reducing the burden of taxation year after year. When we debated the Finance Bill, the Tories voted essentially for £6 billion of tax cuts. How would he fund those cuts? Which services would he cut? He has mentioned welfare. Would he cut welfare benefits for the disabled or the unemployed? Where would he make the cuts, or are his remarks simply hot air?

Mr. Ruffley

Conservative Members would attempt to cut social security spending where it is clearly wasteful and fraudulent—a promise that the Labour party has signally failed to honour. The hon. Gentleman will find that, in the previous financial year, the departmental budget for social security spending was about £97.3 billion. By the end of this Parliament—in the last full financial year, which is 2001–02—it will be about £113 billion. That is a real-terms increase. To make it simple for the hon. Gentleman, social security spending in real terms has gone up and his party said that it would go down. We are talking about waste and fraud and there is a lot of meat on that particular bone, although it is not the only example for which we would have a proper audit to find savings that could be used to run a prudent fiscal policy.

I shall conclude because I want to comply with your polite request, Mr. Deputy Speaker, that we speak only for so long as is absolutely necessary. That will give other hon. Members the chance to answer some of the unanswerable questions that have been put by my hon. Friends. The Government's fiscal policy lacks not only clarity, but honesty: £40 billion of stealth taxes have been heaped on to hard-working families and businesses, and that is why the tax burden has gone up. Those are facts that the public will be made increasingly well aware of over the next few months in the run-up to the general election and the Government will pay a price for playing fast and loose with those facts. We can say, without any doubt at all, that Conservative Members will be working hard to prosecute the case against the Labour party. That case is that it is making a great lie of its fiscal policy.

5 pm

Mr. Nigel Beard (Bexleyheath and Crayford)

I want to concentrate on the capital investment aspect of public investment.

The Victorian era produced immense investment in public works, incomparable with anything that had gone before. Investment in schools, hospitals, prisons, town halls, universities, government buildings, bridges, viaducts and roads was mostly as a result of public expenditure. Much of the result of that expenditure is still with us, but for most of the century this country has been negligent about maintaining and replacing its public assets.

Many schools and hospitals have fallen prey to self-evident dilapidation; action has been postponed for a long time, and is overdue. Public servants are working in accommodation that is drab and unkempt and inferior in quality, decoration and convenience to that experienced by their counterparts in the private sector. Public patience is running out with roads and railways that have not been developed to satisfy modern demands. There is now a huge backlog of investment, which will present a major challenge in the new century.

The economist Professor J. K. Galbraith decried America, describing it as a country of private affluence and public squalor. That has also become true of Britain in the second half of the 20th century. It is tempting to denounce the current state of affairs as fecklessness on a grand scale, but it is worse than that. For 18 years, starting in 1979, a Conservative Government made it a deliberate act of ideology to propound "Public spending bad, private spending good". Boom-and-bust management was also popular during that period. Whenever savings in public expenditure were necessary, the politically expedient way of cutting capital spending was chosen. What people had not had they would not grieve over—or would not grieve over as much as they would if they had lost what they had.

Between the financial year 1993–94 and the election year 1996–97, current departmental expenditure rose from £135 billion to £148 billion, but capital spending plummeted from £21 billion to £13 billion in the same three-year period. The Treasury's statistical analysis reveals a similar pattern in regard to capital spending by both local authorities and public corporations. As the 1997 general election approached, current spending for immediate effect was boosted, while capital spending that no one would miss immediately was axed. Nor could it be argued that the need to cut taxes lay behind the demise of so much capital spending. In the financial year 1996–97, capital spending amounted to only 8 per cent. of departmental expenditure.

As a result of the ups and downs in capital spending, commitment to the planning of investment programmes is fitful. Schemes that have long been expected are postponed and there is no definite date for their start; alternatively, an organisation is suddenly galvanised into frenzied activity to spend money that has unexpectedly become available. That unpredictability of public works means that complementary private investment that depends on it is delayed, and takes place afterwards rather than alongside the investment. That has happened in the case of the docklands development here in London, and is now happening in the case of the Thames gateway development.

I am not sure whether this is another aspect of uncertain financial backing. What is definite is that many public capital projects have a very bad reputation for being over budget and overdue. The Jubilee line extension—£1.5 billion over budget and 18 months overdue—is but the latest in a series of public projects that have been inadequately controlled. No modernising Government, faced with today's tidal wave of demand for investment in public infrastructure, could or should tolerate the inadequate scale, the fluctuation and the poor control of capital investment in the public sector. We have—like a farmer eating his own seedcorn—long lived off a legacy of Victorian capital, but a consistent approach to updating and replacing that legacy is now urgently required.

Perhaps it is not surprising that public capital investment is out of sight and out of mind when public expenditure is examined. Unlike a private business's accounts—which account clearly for the business's assets, their depreciation, and new investment—Government accounts barely distinguish between capital and current account spending. Government accounts paint a picture which is, on a large scale, the equivalent of a small shopkeeper living out of the till. They are concerned with incoming and outgoing cash, regardless of whether that cash is spent on capital projects, with benefits continuing for many years, or on immediate consumption.

The confusion between capital and current expenditure makes financial markets suspicious of large-scale Government borrowing. The financial markets have no means of knowing whether borrowing will go on current expenditure, to get a Government out of a political hole, or to provide a valuable long-lasting capital asset. The consequent limit on public borrowing —the point at which the confidence of the financial markets tends to lapse—has in itself led to underfunding of public infrastructure.

The Government's code for fiscal stability—which has already been mentioned in the debate, and was approved by the House a year ago—will go some way towards ending the ambiguity about Government borrowing. In particular, the golden rule—that borrowing will go only for investment—and the sustainable investment rule, which will keep net debt as a percentage of GDP at prudent levels, should both reassure financial markets as they are seen to be applied by the Government.

Another consequence of Government accounting is the lack of any allowance for the depreciation of capital assets, so that there is no systematic allowance for maintenance expenditure. There is also no financial penalty for keeping assets, once acquired, idle or underused. Therefore, across the country, Government land and buildings continue to sit unused for years.

The broad inadequacy of public accounts, and the consequences flowing from it, is being dealt with in the Government Resources and Accounts Bill, which recently received its Second Reading. The Bill will ensure that each Department provides the equivalent of a profit and loss account, a cash flow statement covering current spending, and a balance sheet accounting for the value of assets, depreciation and investment. Additionally, there will be a statement of resources used against specific departmental objectives which will clarify the relative allocation of resources.

Those reforms will potentially enhance the transparency and accountability of public spending and highlight the adequacy of capital investment. In doing so, they will also focus the debate and go a long way towards eliminating some of the inadequacies of public sector investment that I mentioned.

The reform of Government accounts—when taken with public service agreements, which give individual Departments detailed efficiency targets—should lead to a major increase in public sector effectiveness and productivity. The changes may also make possible a better debate on the adequacy of capital investment and on the purposes for which it is allocated.

Taken alone, however, the changes will not increase the amount of investment capital available to the Government, and they will not improve the record of management control of public sector projects. The aim of public-private partnerships—and, more particularly, of private finance initiatives—is to accomplish both those goals.

With the private finance initiative, the investor knows the exact purpose—which could be assessed as a specific project—of the investment. Moreover, the private partner is able to exert control over management of the project in return for shouldering some of the inherent risks. Generally, the private partner has expertise and experience in a particular type of project, and is therefore well qualified to exert project management control.

The traditional alternative to such investment has been for investors to provide money by way of bonds or a similar device, but that requires the public sector agency to shoulder all the risks of overextended budgets and overruns in time. Above all, the private finance initiative provides someone with a vested interest in ensuring that a public asset, whether a hospital or a bridge, is properly maintained during the lifetime for which it is designed.

Following a traditional route for public sector capital projects—that is, Treasury borrowing and a project controlled entirely in the public sector—would not allow adequate investment overall. It would mean the public purse taking all the risks and would not necessarily attract private sector expertise and experience in management.

Alternatively, privatisation means sacrificing public operational control, and potentially some public interests, just to raise the initial capital for the project.

Public-private partnerships and private finance initiatives are a third way. They retain public operational control while lifting the ceiling on public sector investment and overcoming the inadequacy of public sector asset maintenance.

The old ideological fixations must die away in favour of arrangements that work. People want not a contest between public and private, but a cross-fertilisation of the best of each. Their instinct is right.

Mr. Tyrie

I do not want to wreck the hon. Gentleman's career, but he is giving quite the most thoughtful speech that we have heard from the Labour Benches this afternoon—and, indeed, for some time. He is quite right about resource accounting, but does he think it possible to draw a clear distinction between capital and current spending where no income stream is derived from the investment? Is it possible to clarify that distinction—as is being attempted in the accounts—to the degree that the Government are planning?

Mr. Beard

Yes, it is far more possible than what is happening now. There may be some grey areas as to what is capital or whether it is being consumed currently, but the vast bulk of projects can be accounted for in terms of capital. That would be a great improvement.

The instinct of people in looking for a cross-fertilisation of the best of private and public is right. Without a new approach to public accounting that values capital assets and ensures their maintenance—as well as the new arrangements for fund raising and risk sharing—this country will rot. A rising tide of dereliction and decay will disfigure all our environments.

Any fair and progressive modern society must have a proper balance between public service and private activities. The steps now being taken to display and manage public expenditure more effectively are essential to achieving that balance, and essential to modernising Britain.

5.13 pm

Mr. Tim Loughton (East Worthing and Shoreham)

It is always a pleasure to follow the hon. Member for Bexleyheath and Crayford (Mr. Beard), as we have been doing a lot of recently in Committee. I concur with my hon. Friend the Member for Chichester (Mr. Tyrie) that the hon. Gentleman has made one of the more considered speeches that we have heard from the Labour Benches today.

It strikes me as odd that a Government motion and debate on the economy has been sidelined to the last sitting day of this millennium, before Christmas, and that large parts of the motion are concerned not with defending the Government's record on the economy, but with criticising their own warped, soundbite-ridden and factually incorrect version of the Opposition's policies. That trend was repeated time and time again by Labour Members in the debate. One would think that the Conservatives were still in office.

I do not think that any of us would deny that the economy is in a relatively healthy state at the moment. By most measurements—unemployment, inflation and borrowing figures— the economy is doing fairly well. However, the key considerations when judging the Government's economic record must be threefold. We must ask, first, how the UK is doing internationally —we are continually told that that is important, and I agree; secondly, how well spread the current prosperity is throughout the country and whether all our subjects are enjoying the alleged investment boom; and—

Mr. David Taylor (North-West Leicestershire)

Subjects? I thought that we were all citizens now.

Mr. Loughton

We still live in a democratic monarchy, even though Government Members have done their level best to reverse that—and may yet succeed.

Thirdly, we must ask whether the Government's policies will achieve long-term sustainability or are storing up trouble for the future. All three considerations produce rather worrying results and show the Government's economic policy in a different light from what they would have us believe.

I had hoped that we would have a proper debate, be able to question the Government freely and receive genuine answers, but those hopes were dashed a little after 12.30 today. The culture that has built up—it pervaded the opening speeches today—is that to oppose the Government, to question the basis of any of their policies or merely to scrutinise closely the validity of their figures is nothing less than a cardinal sin; it is anathema, in the Vatican of new Labour, to be at all critical. The riposte is always, "How dare you?"

We have seen that attitude yet again this afternoon. The motion smacks of such arrogance and intolerance. A good example is a written answer on company bankruptcies that I received recently. It would be of particular interest to the hon. Member for Luton, South (Ms Moran), if she were here. If Labour Members are to be believed, the years 1979–97 were a period littered with businesses going under and since 1997, miraculously, it has been a one—way growth trip.

I questioned that attitude and asked the Minister then responsible, the hon. Member for Pontypridd (Dr. Howells), how many companies had gone out of business since May 1997. The answer was interesting. It said: Companies House maintains statistics on the number of companies in liquidation … During the period from 5 May 1997 to 27 June 1999, 105,540 companies were reported as dissolved by means of the voluntary procedures … 118,227 companies were dissolved other than by section 652 … making a total of 262,321. As of 27 June 1999, 69,479 companies were in course of liquidation."—[Official Report, 1 July 1999; Vol. 334, c. 229W.] That gives a slightly different angle on economic prosperity as experienced by businesses in this country over the past two and a half years.

I then asked the same question of the Minister for Small Business and E-Commerce, and her answer was rather different: There are no official statistics on the number of business closures. Collating them would impose too great a burden on business. Quarterly estimates from Barclays Bank show that there were 922,000 business closures in England and Wales in the 27 months between April 1997 and June 1999 … Other indicators confirm that business closures are lower than in previous years. There have been 97,700 company and individual insolvencies in England and Wales since April 1997, 32 per cent. fewer than when insolvencies peaked in the early 1990s."—[Official Report, 22 November 1999; Vol. 239, c. 163–64W.]

The figures were freely available and in July the Minister responsible willingly, unflinchingly, gave them to me, but his successor claimed that the figures were not accessible and slanted those that she did produce with some rather spurious comparison with the early 1990s. To question the validity of information issued by the Government is anathema: "how dare you ask for it?" is the constant tone.

Liz Blackman (Erewash)

Did the hon. Gentleman also request information on the number of business start-ups, and does he intend to mention the number of jobs created since 1997 and the present number of job vacancies, which runs close to 1 million?

Mr. Loughton

The hon. Lady is right. Back in the 1980s, the then Government would have liked to see the figures for net job creations. According to the hon. Member for Luton, South and others, those 18 years were a one-way trip of business closures, but of course that was not what happened. Many new businesses started, in the same way as many have started in the past two years. However, many of those—probably more than 1 million—have gone bust. We should be more balanced, as well as more transparent, about the figures that we are attempting to analyse.

More evidence of the great arrogance that is displayed by Ministers when we question them was relayed by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley).

Mr. David Taylor

There is nobody behind you.

Mr. Loughton

There are many people behind me—spiritually, if not physically. My hon. Friend the Member for Bury St. Edmunds revealed the amazing confession by the Chancellor in the Select Committee on the Treasury a week ago. The Chancellor later denied it, and Ministers have repeated that denial today. However, there is no questioning the statistics which show that the amount of tax taken as a percentage of GDP has risen from 35.3 per cent. in 1997 to 37.2 per cent. In anybody's book—indeed, in anybody's warped calculations—that is an increase in the tax burden of some 2 per cent., even without taking into consideration the fiddled accounting of the working families tax credit. By comparison, the tax burden in Germany is 37.1 per cent. and in the US it is much lower, at 29.7 per cent. of GDP.

Mr. Taylor

I have listened to the hon. Gentleman's argument carefully. He said earlier that the Government would be judged on three basic themes at the next general election—haw they had done internationally, how they had distributed growth between groups of people and geographically, and the sustainability of the economic policies that they had pursued. The hon. Gentleman did not suggest that the electorate would rely on the figures for the tax burden in deciding how they might vote.

Mr. Loughton

I am impressed that the hon. Gentleman has listened so closely. He mentioned the three criteria that I flagged up earlier, and one could include the tax burden under any of them, starting with the international context. That is why I have just put the tax burden in the context of what is experienced by our major competitors. This country's tax burden is higher than—and rising above—those in Germany and the US, and that makes this country far less competitive and its subjects poorer.

If the Government are so proud of their economic record—as they would have us believe judging by the complacency of the motion—why are not they brave enough to admit the real figures? I challenged the Minister earlier on the point that not a single independent economic forecaster agrees with Ministers' fiddled premise, because everybody knows that the tax take as a percentage of the economy has gone up, is going up and will have gone up by the end of this Parliament compared with May 1997. The only way to claim otherwise would be by using fantasy figures.

In actual terms, a retired couple, for example, on a total pension of some £5,750 and a modest amount of savings, will have paid £1,306 extra in tax over the past two and a half years, even if they do not own a car, have a mortgage or take foreign holidays. In real terms, that is a lot of money.

The independence of the Bank of England is another key plank of the Government's self-congratulatory motion, which praises the new monetary policy framework that is supposedly delivering stability and steady growth. The Chief Secretary could not resist the poke at the idea that the Conservative party opposes independence for the Bank of England, but I am not sure that it is true. It takes no account of the establishment by the Conservative Treasury team of a high-level monetary policy commission to examine Bank of England independence, and to determine how real independence could work.

I agree with my hon. Friend the Member for Chichester that the Monetary Policy Committee is not fully independent at present. It is a matter that needs proper consideration. Making the MPC independent is not something that should be rushed into within two days of coming to power—especially when such a full-scale constitutional change had not been mentioned before.

There is great merit in the notion of an independent Bank of England, but the MPC must have no chance of exerting political influence. Certainly, the terms of office of its members must resemble much more closely those applying in the Bundesbank in Germany and in the Federal Reserve Bank in the United States. Longer terms of office render office holders more impervious to political intimidation and control.

We also need a properly resourced MPC that gets far more research from the Bank of England—a recent bone of contention. The Government's claim to take credit when rates go down, and their "not me, guy" mentality when they go up, are absolutely absurd. The Government issue strong signals about the direction in which the Chancellor wants rates to go. Just this week, for example, the right hon. Gentleman was quoted as signalling a new year rate rise to the Select Committee on the Treasury.

It is also not entirely true to talk about the great period of stability that we have enjoyed under the MPC. A report by the journal Economic Affairs states that there has been a clear increase in financial market volatility since the establishment of the MPC, which is criticised for the many changes in interest rates that it has made and for creating a mood of uncertainty around each monthly meeting.

In addition, the National Institute of Economic and Social Research has said that it would have made little difference to the economy if rates had been left unchanged at the 6 per cent. that the Government inherited. Professor Kent Matthews of the Cardiff business school, who carried out the research, stated: If the Bank was trying to reduce volatility in the markets there is little evidence that it has succeeded. If volatility of financial markets is a constraint on the setting of interest rates, the MPC has clearly given it little weight. We should have a proper debate on this matter, and not simply repeat unsubstantiated and vague mantras about who does or does not oppose Bank of England independence. We want to determine the extent of the Bank's independence, and to decide whether giving it full independence would permit it to operate more effectively, as many Conservative Members would like.

Mr. Edward Davey

The hon. Gentleman was talking about the volatility of interest rates and about whether the Monetary Policy Committee of an independent Bank of England could reduce that volatility. I share his concern, and I asked the Governor of the Bank of England that very question in the Select Committee. His answer was that, although small interest rate changes might have happened more frequently since the establishment of the MPC, the peaks and troughs of interest rates had flattened out. He argued that that was a sign that volatility had been reduced.

Mr. Loughton

I am sure that the hon. Gentleman is right, as that is in line with what has happened to interest rates internationally. When rates averaged between 5 and 6 per cent., changes of a quarter of a per cent. were the order of the day. The situation is rather different when rates average between 10 and 12 per cent., when changes are usually of about 0.5 to I per cent. My challenge is to the illusion that the MPC is infallible and that the stability of financial markets has been underpinned by its existence.

The real increase in the UK's GDP is modest when compared with that of our international competitors. The increase for 1999 is estimated at 1.75 per cent., and is expected to be at 2.3 per cent. in two years. However, the comparable figures for France are 2.4 per cent. and 2.9 per cent. For the United States, they are 3.8 per cent. and about 2.5 per cent. For Europe in general, the figures are 2.1 per cent. and 2.8 per cent., and for the countries in the OECD they are 2.8 per cent. and about 2.6 per cent.

The figures show that for the next two years, growth in the United Kingdom is forecast to be lower than that of any of its major competitors. Nor does the current account balance look so brilliant in an international context. We have a deficit of about 1.5 per cent. of gross domestic product, falling to only 1.2 per cent. two years out, whereas France has a surplus of 2.4 per cent., the European Union has a surplus of 0.4 per cent. and the OECD shows a small decline of less than 1 per cent. We are doing pretty badly on that international table. Two years out, our interest rates are forecast to be quite a bit higher than those of the EU and still higher than those of the United States.

There is no cause for the Government's over-complacent attitude.

Mr. Love

Will the hon. Gentleman give way?

Mr. Loughton

If the hon. Gentleman does not mind I will not, because of the time.

I am worried about a number of warning signs on the horizon. Before Labour Members, who cannot take this scrutiny culture, accuse me of trying to talk Britain down, I am just being realistic and—to use one of their phrases—prudent for the long term. The headline growth of average earnings has now accelerated to 4.9 per cent., well above the Bank of England tolerance level of 4.5 per cent. In the service sector it is much higher, running at more than 5.2 per cent., and that is before winter bonuses have filtered through into the system. That is too high to be compatible with the inflation target.

A chief economist in the City, Michael Saunders from Salomon Brothers International Ltd, has said: You have to take an optimistic view on productivity to conclude that pay growth of 5 per cent. is consistent with meeting the 2.5 per cent. inflation target. But inflation in the service sector is running well above the headline rate, at 4 per cent. Raw material costs rose by 2.9 per cent. in November alone—the biggest monthly increase since November 1994. That is an annualised rate of more than a 9 per cent. increase in raw materials. Those are serious inflationary pressures.

The Chancellor told us that productivity is the acid test of economic success. Productivity growth in 1997, when the previous Government left office, was 2.2 per cent.—it is now just 0.7 per cent. On a GDP per capita table, if the UK is the benchmark of 100, France stands at 105, Germany at 113 and the United States is way ahead at 137.

I am also concerned that the overheating of the City and the south-east of England is completely out of sync with the rest of the country. The extended effect of the City of London across a widening region is cause for worry. The commutability of the City extends up to Cambridgeshire, Lincolnshire and even York, and to Oxfordshire and Wiltshire in the west, as well as the traditional commuter belts in my part of the country, in Sussex, Kent and Surrey. The knock-on effect on property prices and on the service sector providing services for the beneficiaries of that wealth leads to great distortions.

There are also great distortions between the public and private sector. For we have grave problems with the social services in west Sussex. In sunny old west Sussex, where apparently we all live in castles, there are serious problems. To give him his due, the Minister of State, Department of Health, the hon. Member for Barrow and Furness (Mr. Hutton), came down to see us two, weeks ago. Crawley has a 40 per cent. vacancy rate for child care social workers, and there is a 40 per cent. vacancy rate among orthopaedic workers in the health service in the north of our county. That comes as no surprise, because the hourly rate for care assistants employed by social services departments is £5.17, compared with McDonald's at Gatwick airport, which pays £7.60 an hour. Those wealth effects extend a long way from the City of London.

The south-east of England will always be at a premium vis-a-vis the rest of the country, because of our location—our nearness to the channel, the airports and the M25—and because of City salaries. We will always act as a magnet for investment and for wealth. But the Government are making matters worse by forcing enormous extra house building figures on us and failing to condemn the Crowe report.

A worrying issue that has been raised increasingly over the past few weeks, and which many of us referred to in the debate on the Queen's Speech, is the great imbalance between the north and the south. If you think that you have seen imbalances so far, Mr. Deputy Speaker, you have not seen anything yet if the Government have their way by concentrating south-east England into the powerhouse for economic growth within the top 10 regions of Europe. It will be utterly unsustainable. I shall not embark on some of the regional contrasts that are possible, as I am aware of the time. However, among the warning signs mentioned by several hon. Members, the savings ratio has collapsed from 9.4 per cent. to 5.8 per cent., which is very worrying.

Finally, I shall turn to the tax burden and the quality of services. Even Government Back Benchers are able, when under pressure, to discuss the £40.7 billion levied in extra taxes—largely by stealth—over the life of this Parliament. The burdens of regulation are added to the tax burden, and administering pay-as-you-earn schemes, the working families tax credit and the working time directive has a special impact on small businesses. Those burdens are affecting UK competitiveness, which is sinking fast.

Using stealth taxes, the Chancellor has gathered in a virtually all-time record haul of extra revenue. National insurance rises will hit 4 million middle income earners, despite the assurances of the Paymaster General that no one would be hit. In addition, the Chancellor will reap £3 billion in unexpected windfalls because of the Government's policy for dealing with pensions mis-selling. As more people return to the public sector pension scheme, they will bring with them short-term revenue, but the Government will eventually have to pay out when they retire. Self-assessment for corporation tax and up-front payment bring cash flow advantages to the Government, and the stamp duty bonanza from booming equity markets is disguising the uncompetitiveness of stamp duty in the UK. At 0.5 per cent., ours is the highest of any major equity market.

For all the Government's embarrassment of riches, what evidence is there that ordinary people are experiencing an improvement in the quality of their public services? What evidence is there of secure and sustainable long-term improvement? There is certainly no such evidence in Sussex or in my constituency. My local hospital has some of the longest waiting times in the country. We have had an above-average share of the 500,000 people who are waiting to get on waiting lists. A constant stream of complaints comes to me from people whose operations have been cancelled for a third time and who are pressing towards the 18-month treatment requirement. Hospitals in the north of west Sussex, at Haywards Heath and Crawley, are under threat. West Sussex health authority has a record deficit.

Raids through standard spending assessment adjustments on the shire counties in favour of northern metropolitan boroughs have left our social services underfunded by £7 million, although we are spending more than the amounts recommended by the Government. Our residential homes have been threatened, as have home helps. Cuts of £4.2 million have been instigated.

On law and order, my constituents certainly are not seeing the effect of the Government's supposed extra investment. No police station in my constituency opens in the evenings or at weekends. The existence of at least one station is under threat. No patrol cars operate from stations in the whole of my constituency. Sussex has 161 fewer officers than it did two and a half years ago—the second biggest cut in the country. In addition, we are bottom of the league on crime clear-up figures.

There is no evidence that all the extra tax is feeding into better services. On transport, the phrase "standstill Britain" could have been invented for Worthing and the A27. Every trunk road improvement scheme for the whole of west Sussex has been scrapped by the Government. As my hon. Friend the Member for Chichester said, the amount of money spent is not the only important thing. The quality and targeting of spending matter too.

The Government's motion is arrogant and complacent. It is, therefore, entirely in keeping with the attitude of a Government who are completely unwilling to tolerate criticism and who have set themselves above legitimate scrutiny by the House. When one wades through the fiddled figures, selective quotations from tables and worn-out soundbites, one finds many reasons why the Government cannot afford to be so complacent and impervious to challenge.

Internationally, the UK's performance is not so rosy. Domestically, a creeping cancer of economic apartheid is threatening to fragment the United Kingdom even more thoroughly than the Government have through their constitutional vandalism. When the Government are flush with revenue from their stealth tax crusade, the exaggerated spending figures of which always we hear are having next to no affect on the quality of public services. Their policy will soon prove unsustainable. It is storing up trouble for the future. The Government would be better advised to address the real long-term problems with sustainable solutions, rather than wallowing in sickening self-congratulation, when most of the achievements that they claim are, in fact, down to outside forces.

Several hon. Members

rose—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order. In a spirit of seasonal goodwill, may I appeal to hon. Members to show some generosity to each other in the time remaining? Otherwise many will be disappointed.

5.40 pm

Mr. David Kidney (Stafford)

The right hon. Member for Wells (Mr. Heathcoat-Amory), who spoke for the Opposition, asked a valid question about the Labour party's contribution to the century. The Labour party has served the country in government for 23 years out of 100. Although I am proud enough that we founded the welfare state, set up the NHS and established comprehensive education, I would be pleased to assure him, if he were in his seat, that the best is yet to come.

Of course, if hon. Members were judging us by the record of previous Labour Governments, we would be waiting for the mid-term economic crisis, but it has not occurred. In an independent article VI assessment of the British economy published on 24 November, the International Monetary Fund describes the "remarkable" performance of the British economy. It says: The public finances, in particular, have clearly shifted into the `sound' range, from significant deficits to a small surplus". The present Labour Government are out-performing not only all previous Labour Governments but the last Tory Government.

What delights me especially is that this is the Labour Government who have learned that economic competence and social justice can go hand in hand. It is odd that, in a debate on public spending, no hon. Member has mentioned today's tremendous announcement about the Government's extra contribution to relief of debt for the world's poorest countries—a very creditable announcement at this time of the year and a great tribute to the Jubilee 2000 coalition that has fought with such honour and decency for debt relief.

Mr. Letwin

I hope that the hon. Gentleman will acknowledge that Conservative Members thoroughly support that proposal, unlike many others.

Mr. Kidney

I am also happy to acknowledge the contribution of the right hon. and learned Member for Rushcliffe (Mr. Clarke) when he was the Chancellor of the Exchequer.

As ever, my right hon. Friend the Chancellor is not short of advice; it does not come just from those in the House. The IMF tells him that there is no case for relaxing fiscal policy". The Institute for Fiscal Studies says that only a small fiscal loosening is compatible with the Chancellor meeting his rules for public borrowing". British Chambers of Commerce warns the Chancellor not to be "profligate" with personal taxes and says: we support the prudence the Chancellor has consistently advocated". I hope that the Chancellor is still in listening mode for sensible advice as I should like to proffer my own for a few minutes; and it will be just a few minutes, Mr. Deputy Speaker, having regard to the time that is left.

It is forecast that there will be budget surpluses over the coming two or three years. I accept the IMF's assessment that that is largely a cyclical phenomenon. The article VI assessment describes it as transient in nature, so an important note of caution needs to be sounded when all of us present our shopping lists to the Chancellor.

Another reason why caution is needed is the fact that there are upward pressures on inflation, to which several hon. Members have referred. As I said to the hon. Member for Kingston and Surbiton (Mr. Davey), if the Chancellor makes decisions about public spending or tax cuts that the Monetary Policy Committee judges to be unwarranted, its response will be to tighten monetary policy. Any gains that we feel would arise from that fiscal stimulus might be taken away with an increase in interest rates.

There are many reasons for the Chancellor to continue his famed prudence. However, there is scope for some clever spending, as I shall show in my advice to the Chancellor. To support my first piece of advice, I refer to the report in The Guardian on the Chancellor's performance before the Select Committee on the Treasury last week—although not to the point chosen by the hon. Member for Bury St. Edmunds (Mr. Ruffley). I refer to the mention in the report of broad hints from the Chancellor that there might be more money for health and education in the comprehensive spending review next year. I applaud that. I hope that it is true, although my right hon. Friend will realise that any spending increases must be prudent and sustainable.

My second piece of Christmas advice to the Chancellor is to urge him to continue to put as much distance as possible between himself and the ball and chain of the public sector borrowing requirement. Unlike some Conservative Members, I am pleased by the introduction of more realistic measures, such as the net cash requirement, instead of the old and restrictive PSBR—a measure which positively discriminates against proper capital investment in our infrastructure. I hope that the Chancellor continues to make those moves and that eventually he adopts the general Government financial deficit measure which is used elsewhere in Europe.

I am not only making a plea for the use of different accounting; we need different thinking in the public sector, so that it is free to be innovative. There have been some small examples of that: the armed forces have been given some leeway to attract commercial uses for their surplus resources. I have seen that at RAF Stafford, where the RAF has been innovative in trying to make the best use of its storage space, and in using the strong security of its premises.

I applaud such initiatives and hope that there will be more of them. Under the Local Government Act 1999, local authorities have been given a little more freedom to form trading companies and joint ventures.

My final pieces of advice are on education and productivity—two matters to which the Chancellor will be glad to turn his attention, as education is one of the Government's top priorities and the improvement of productivity is one of the Chancellor's favoured aims. I hope that I shall not bore those on the Treasury Bench if I make a plea to end the unfairness in Government education funding for local authorities. The present system of distributing that money is extremely unfair. The Government accept that and a working party is currently studying the matter. The Chancellor has announced that one of the 13 interdepartmental committees will consider local government finance. I hope that there will be some one-off spending that does not disadvantage authorities that feel threatened when authorities such as Staffordshire ask for more money for education. Authorities at the bottom of the spending league table should be brought higher up without affecting those at the top. That will require one-off, ambitious spending from the Treasury.

As I pointed out in a previous debate, we underinvest in our capital infrastructure. We need investment in order to achieve the highest productivity in UK plc. Through the Treasury task force, we have come a long way in improving performance on private finance initiatives—now public-private partnerships—attracting private investment for capital projects. The Chancellor has reversed the long-term decline in public investment in capital projects under the previous Government. He has done a good job. However, if there is capacity for further public spending, it would be excellent to use that money for public projects—capital spending to improve our infrastructure and productivity.

5.49 pm

Mr. Nick St. Aubyn (Guildford)

We have had an interesting debate, even if it has been somewhat arcane and specialised at times. It has concentrated on the Government's spending inputs, rather than on the results that have been achieved for the people whom we represent.

Let me begin by telling the story of one of my constituents, who wrote to me recently about her mother, a lifelong member of the Guildford Labour party, who, sadly, died recently of a heart condition which until 1997 would have been diagnosed and treated in time. My constituent and her family feel betrayed by the Government and their health policies, and by Health Ministers.

The treatment did not arrive in time because the waiting time for the diagnosis of heart conditions in West Surrey has gone up from three to nine months, and it is now rising to a year. That is the result of a 20 per cent. cut imposed on the hospital service by the health authority as a result of the changes introduced by the Government, who took authority for the budget away from local doctors and gave it to the health authority. That is a classic example of how changes in the way in which that the service is delivered—it is now more bureaucratic and less sensitive—have directly led to the tragic loss of the lives of my constituent's mother and others in my area.

Only last week, the Daily Mail reported the case of a 29-year-old man who was in the prime of life. He had a huge amount to offer and an immense number of friends and he was earning his way in the world. The leading heart specialist at the Royal Surrey County hospital told me that he was convinced that that man would have been alive today if the quality of care had remained at the level available in 1997. The specialist had the terrible task of explaining to that man's family that he had not been able to give him the treatment that he knew was needed and that he would have been able to give him in the past.

Ms Keeble

Will the hon. Gentleman give way?

Mr. St. Aubyn

I will come to the hon. Lady's comments shortly. I have described the result of the Government's policies. Earlier I was told that, somehow, I did not campaign hard enough for my area. I took it as a given that, wherever the Government's new money went, they would at least maintain the standard of care delivered by the previous Government.

When we were in office, we made sure that the areas that we did not represent—the poorer parts of the country—were very adequately funded. For example, over the past seven years of the Conservative Government, the funding per head in Gateshead increased well over the funding per head in Guildford. Since this Government came to power, they have skewed the formula, which already benefited the less well-off parts of the country to the detriment of the areas that Conservative Members represent.

That is the callous political calculation that we have seen and I am determined to expose it in the Adjournment debate that Madam Speaker has kindly granted me on 13 January. I hope that the hon. Member for Northampton, North (Ms Keeble) will be present on that occasion, when she will be able to judge in depth the facts of the case. The hon. Lady said that the West Surrey health authority had a deficit in 1997. That is true; there was a small operating deficit—an accounting deficit. The funding needs of West Surrey were met in full by the previous Government. However, that accounting deficit demonstrated that the formula that threw it up was faulty. It showed that the measure of health need in areas such as mine was not adequately taken account of by the formula at that time. This Government's actions have made the position worse.

Conservative Members are concerned not just with the inputs but with the outputs. We are concerned that, despite the extra money that we are told is going into the health service today, the accident and emergency unit at the Royal Surrey County hospital, which serves hundreds of thousands of people in my area, is still under threat of closure after today's announcement.

Mr. Love

Is the hon. Gentleman calling on the Government to spend more on health in the future?

Mr. St. Aubyn

I am grateful to the hon. Gentleman. He knows as well as I do that the Government's remit is to spend the money fairly. I am calling for fair treatment for my part of the country and the efficient allocation of that money. We achieved such efficient allocation with the internal market, the loss of which has directly led to some tragic cases.

I shall give Labour Members another example, drawn from the world of education. My hon. Friend the Member for Chichester (Mr. Tyrie) described how other countries, despite spending far more per head of population on education, have failed to deliver better results than we did when we were in power.

As a member of the Education and Employment Select Committee, I go round the world hearing how other countries have been drawn to the excellent example that this country achieved through our introduction of the national curriculum and external inspection, and other innovations such as the grant-maintained school, with which we were able to improve educational performance in this country.

Above all, I point out to Labour Members the example of the further education sector. It is often said that we live in the learning age, which for me began six years ago when the previous Conservative Government liberated further education colleges from the yoke of local education authorities. The colleges found that, standing on their own feet, they could deliver a 30 per cent. productivity improvement over six years. That meant that they were delivering the equivalent of I million extra full-time courses a year to adults and children in this country for the same real cost, without any discernible loss of quality.

When the Government say that they have put an end to boom and bust, let them not forget the role of further education colleges since 1993 in meeting the skills gap by educating the equivalent of an extra 1 million full-time students a year. That has made a dramatic impact on our economy, and it is a vital part of the golden legacy that the previous Government bequeathed to the incoming Administration.

I turn now to class sizes, on which I have tabled a question to the Secretary of State for Education and Employment, for answer on 20 January. The Government came to power saying that they would cut class sizes in the first three years of full-time education. They put a cost on that programme of £100 million, which many might say was £100 million well spent. What we now learn, however, is that the cost of the programme has risen by more than six times, to £620 million.

As so many who gave evidence to the Select Committee told us, that money could have been spent on the far more urgent matter of teacher supply and the need to raise the quality of our teaching staff. Whatever the class size, the quality of the teacher is the overriding determinant of how well the children learn.

There is another way in which to view the fantastic overspend by the Department for Education and Employment in delivering the class size pledge. We can ask ourselves what would have been the cost of delivering the pledge if, to reduce class sizes, the Department had decided to purchase those extra places from the independent sector.

We hear a great deal from the Government about public-private partnership and about introducing new players into education, but when it comes to the private sector players who have the most experience of teaching kids, suddenly an iron curtain comes down. An old-fashioned "us and them" attitude pervades the Government, and they want nothing to do with the independent sector.

Nevertheless, we ask what would have been the cost of purchasing the 6,000 places from independent schools throughout the country which would have enabled all pupils in each of the first three years in state schools to be in classes of fewer than 30 pupils. That cost would have been just £10 million a year, or a total of £40 million over four years, as opposed to £620 million. That £40 million is less than half of the amount that the Government originally said they would spend, and less than a tenth of what they will now spend to deliver their class size pledge.

That is a dramatic example of how, if we are to deliver value for money to our constituents, we must measure the outputs and the results of Government measures, not just the money that they pour in. As we have seen time and again, the Government have wasted and misallocated that money at the expense of our constituents' needs.

Liz Blackman

Does the hon. Gentleman accept that, no matter how good the teaching, when class sizes reach 44 or 45 pupils, as they did in my constituency, the optimum level at which children learn is capped?

Mr. St. Aubyn

I entirely agree with the hon. Lady that one of the side effects of the Government's programme is that, in their first year in office, the number of children in classes of more than 40 doubled—partly as a result of the pressures on teacher supply created by the Government's early years programme, which would have been relieved entirely if they had purchased the extra places from the independent sector. The hon. Lady makes a valuable contribution to the point that I am trying to make, and I am grateful to her for it.

The question of output relates directly to the debate started by my right hon. Friend the Member for Charnwood (Mr. Dorrell) on the tax burden. We notice time and again how Ministers shy away from admitting how much the tax burden has increased under this Government. At the same time as delivering worse value for money, they are increasing the tax burden.

Of course we on the Conservative Benches want a lower tax burden, because we believe that lower taxes are an incentive to members of our society to work harder and contribute more. We proved that in the 1980s and 1990s when in office. We also believe that investment is improved in a low-tax economy. It is more carefully allocated and that leads to greater wealth and an expansion of the tax base. A faster-expanding tax base is worth far more in extra revenue in the long run than a higher tax burden. We will always trade a lower tax burden for the resultant faster expanding tax base, and that is why we will deliver better-quality services in health and education in the medium to long term.

Where would the cost of lowering the tax burden fall? Clearly, it should not fall on health and education, as our amendment makes clear. It should fall on other areas of government. It should be achieved by programmes to convince the workshy to get back into work and to reduce the dependency culture. The latter not only saves the Revenue and the taxpayer a great deal but provides a better future for those in the dependency cycle.

Ms Keeble

The hon. Gentleman and his colleagues constantly express a hard-right, Thatcherite view of the tax burden, but it is interesting to note that in 1985—I am sure that he will accept this—the tax burden was only 0.1 per cent. lower than it is now. That was during what he considers to be the heyday of his Government's policy of low taxation. His argument simply does not hold water.

Mr. St. Aubyn

The fact is that tax burden fell throughout the golden years of the 1980s, to which I shall come in a moment if I have time. With the tax burden percentage in the low 30s, we were able to increase public spending at the same time as repaying Government debt and cutting taxes. That was the agenda on which we went to the country in 1987 and on which we won a record third term in office. Those were indeed the golden years of our economy, which this Government are sadly nowhere in sight of repeating.

That leads me to the question of boom and bust. Yes, there was boom and bust in our economy. [HON. MEMBERS: "Oh."] The years of Labour government in the 1970s were almost entirely bust; there was never any boom. At the end of that term in office, there had been no real growth in the economy for a whole Parliament—just massive inflation. In the 1960s, our level of growth was well below that of our competitors in Europe and America, but in the 1980s and 1990s, as my hon. Friend the Member for Chichester made clear, we achieved a massive increase in output. Yes, there was a price to be paid in restructuring our economy.

Mr. David Taylor

Not in Guildford.

Mr. St. Aubyn

Sadly, there was a price to be paid in a period of high unemployment.

Mr. Taylor

Not in Guildford.

Mr. St. Aubyn

Nevertheless, by the time we left office, nearly all that unemployment—[Interruption.]

Mr. Deputy Speaker

Order. I am sorry to interrupt the hon. Member, but the hon. Member for North-West Leicestershire (Mr. Taylor) should keep silent. I do not want continual sedentary comments.

Mr. St. Aubyn

I am grateful to you, Mr. Deputy Speaker, for reminding the House of its natural courtesies. I hope that I will now be heard more carefully by the hon. Gentleman, as this goes to the heart of the matter.

There will always be an economic cycle, but thanks to the previous Government's supply-side reforms, we can hope that the troughs will be fewer. Whether the peaks are more numerous depends on how much damage has been done by the present Government's reforms, which have increased the burdens on business and will, in the long run, do little to help the performance of the economy.

Mr. Geraint Davies

rose—

Mr. St. Aubyn

I shall develop the point, if the hon. Gentleman will allow me. The excessive boom that occurred at the very end of the 1980s was not caused by cuts in taxation. The stimulus to the economy from the last Lawson Budget was only £4 billion. The devastating stimulus to the economy came from the withdrawal of capital that people had in their homes. They were spending between £10 billion and £20 billion a year of capital from their homes on current consumption.

Such spending is never sustainable. We learned that lesson. We learned how to control it, and during the previous Parliament there was virtually no equity withdrawal, as it is called, from the housing market. In the year just ending, however, we find that equity withdrawal is on the increase again. The Bank of England's latest figures suggest that there will be almost £5 billion of equity withdrawal this year. Next year we may get perilously close to the boom conditions of the late 1980s. [Interruption.]

I should like the Minister to answer a question, if he will pay attention for a moment. If there is an increase—[Interruption.] Will the Minister pay attention to the debate for a moment? If there is an increase in equity withdrawal in 2000–01, are the Government going to rely entirely on the actions of the Bank of England to constrain that equity withdrawal, or are they going to change the tax system? I hope that the Minister's officials, at least, picked up that question and will provide an answer before the end of tonight's debate.

The answer to the question will have a critical impact on whether we can sustain a boom without bust through this Parliament—let alone into the early years of the next century. The savings ratio is already collapsing—that much we know. As a result of that, the conditions of the late 1980s may well be around the corner. An imaginative response from Government could sustain growth, but judging by the actions of this Government, who time and again have attacked savings through their tax increases rather than supporting them, I very much doubt whether we are in the hands of people who know which way to push the tiller.

We have heard a great deal of talk about the independence of the Bank of England. As a member of the Standing Committee that considered the Bank of England Bill, I recall we were clear in our view that the Government had neither delivered Bank of England independence nor fulfilled the Maastricht criteria. They have offered the Bank of England pseudo-independence, not real independence.

What is independent and what is long-term about a situation in which the average tenure of any member of the Monetary Policy Committee is only 18 months? Members are appointed on a phased basis for three years, so at any moment their average term of tenure is only 18 months. We need members of any Monetary Policy Committee to have a far longer term of tenure if we are to have a genuinely independent Bank of England. Without that, all the Government's claims are spurious.

Moreover, the exchange rate policy is still very much in the domain of the Government. Within the framework in which the Bank of England has to work, the Government can use their exchange rate policy to oblige the Bank of England to make interest rate cuts or interest rate rises at will. Again, all the levers are there.

Finally, there is the famous section 19 of the Bank of England Act 1998, which allows the Treasury to take back unilaterally, for three-month periods in succession, with barely a reference to the House, the full control of monetary policy. That is not what we understand independence to mean. It is the sort of independence of mind practised by Labour Back Benchers. Sadly, it is only the appearance of independence, never the reality.

I fear that I do not hope for much from the Minister's speech. However, I hope that he has time to make it and that he will consider my points, and the obligation of all hon. Members to support a fair system of public expenditure both for the areas that he and his hon. Friends represent and for those that Conservative Members represent. Let us hope that that may be the ultimate outcome.

I am grateful to you, Mr. Deputy Speaker, for calling me as the last Opposition Back Bencher to speak in the House this millennium.

Mr. Deputy Speaker

I am grateful for the hon. Gentleman's words, although I thought that he might complete the millennium.

6.10 pm

Charlotte Atkins (Staffordshire, Moorlands)

I am delighted to follow the hon. Member for Guildford (Mr. St. Aubyn) because I, too, would like to make a few comments about education.

Education has been a Government priority from the start. That means an extra £21 billion for education in the next three years. Although Staffordshire has problems with its standard spending assessment—and, as Treasury Ministers are present, I shall take the opportunity to echo the comments of my hon. Friend the Member for Stafford (Mr. Kidney) about the need to resolve the problem of unfair funding—I want to speak about my constituency and how capital moneys have brought real benefits to education in Staffordshire, Moorlands.

I shall cite a few examples. A new extension for a small, two-class rural school in Ilam has given teachers necessary space for small group work, which is essential for raising standards. For the first time, teachers will have a staff room, albeit only large enough for three chairs. However, at last they have a place where they can at least have a cup of tea on their own. I am pleased with the Government's commitment to rural schools. They are committed to keeping rural schools open and to increasing standards through the £40 million small schools support fund, which will ensure that small rural schools are no longer considered second class by local education authorities.

Moorside high school in Cellarhead in my constituency has new laboratories and design technology rooms. When I visited the school after the general election in May 1997, I was appalled by the facilities. The laboratories were out of the 1950s; they were not even big enough to take a full class. No self-respecting pupil—girl or boy—would have been encouraged to take up science as a career. That has now changed, and thus created new opportunities for young people in a subject that is vital both to them and the nation. The headboy and the headgirl at that school are leading the way by taking up medical careers.

Clough Hall high school is in the low-income area of Kidsgrove in Stoke-on-Trent. Led by a visionary head teacher, Mick Readman, the school has won technology school status and, with it, sponsorship from local firms, and a big financial boost from the Government. Those resources have to be shared in partnership with other local schools and the community. The system is not now one of winner take all, as it was under the previous Government.

The community benefits through after-school activities, and a boost to the local economy. A few weeks ago, ICL announced 500 new, permanent, highly skilled e-business jobs at its site in Kidsgrove, down the road from the school. ICL is one of the technology school's sponsors. It is no coincidence that those jobs appeared in Kidsgrove. In previous years, Kidsgrove would not have been the obvious choice for such new jobs. North Staffordshire had a poor record on the number of 16-year-olds who stayed on at school. The skills simply did not exist, and any jobs would have gone to outsiders, who commuted from nearby cities. Now, we can begin to rely on home-grown talent.

As a Government, we are trying to break the cycle of generational unemployment, under-achievement and educational failure. We want to eradicate child poverty, and we are achieving that in many ways, but education is one of the most important. Low educational attainment makes low pay and unemployment more likely. In 1997, people with no qualifications were twice as likely as those with level 2 qualifications and four times as likely as graduates to be unemployed. In the 1990s, people who stayed on at school after 16 had earnings 60 per cent. above those of people who left at 16. That gap has grown from 40 per cent. in the 1970s, which is why I am such an enthusiastic supporter of the investment in learning and skills councils. They will be responsible for all post-16 training and education. For the first time, we shall have a funding system that responds to the needs of learners rather than to institutions.

The hon. Member for Guildford mentioned the productivity rise in further education colleges, but what was the cost of achieving that? There is no support for students, and lecturers are parachuted in to teach their courses and leave. They are part-time, and have no real connection with their students. They cannot support them even though they are frequently the people who were failed by the school system under the previous Government. I am pleased that the learning and skills councils will look after those pupils who did not excel at school and were abandoned by the Conservatives. Many people did not have a good experience of school, but we need to develop the skills of all our population. We must have a knowledge-based economy in which we can rely on all our human capital and not only the small, highly qualified elite, with the rest left to their fate.

Have the Opposition learned anything from those developments in education? I fear not. They still cling to their competitive education model. They do not want co-operation between schools. They do not believe that schools can spread excellence, even though that is what we have seen with our beacon schools. They argue about class sizes but, when they were in power, they considered them to be irrelevant to raising standards even though many Conservative Members bought smaller class sizes for their own children through the private sector. We are the Government of economic opportunity for all, but theirs is still the party of the privileged few.

6.17 pm

Mr. Oliver Letwin (West Dorset)

The background to the debate can be, and has been during the debate, described in two different ways. The Government's view consists of a miraculous papier-mâché mixed metaphor in which, by getting out of spending silos and conducting cross-cutting reviews to join up government, all is suddenly for the best in the best of all possible worlds and all economic cycles heretofore known to man disappear in the face of permanent prosperity, which has replaced a disastrous economic legacy.

The other picture is one that many of my hon. Friends—most recently my hon. Friend the Member for Guildford (Mr. St. Aubyn)—have painted, and I think that it approximates the truth more closely: the Government were lucky enough to inherit what has been described as a golden economic legacy but is in truth a fundamentally sound structure of an economy that has proved sounder and stronger than many of us expected. I think that my hon. Friends would agree with that. Since then, it certainly has to be admitted that there have been, in comparison with those of many previous Labour Governments, some good moves and sensible and prudent efforts. At the same time, however, worrying trends have emerged.

My hon. Friends the Members for East Worthing and Shoreham (Mr. Loughton) and for Guildford mentioned some of those trends. For example, in the balance of trade, there is a £19 billion deficit in goods, even in the first three quarters of this year, and a £10 billion deficit in goods and services in the same period. There are many other worrying trends such as asset price overheating and perhaps the beginning of serious worries about competitiveness and savings. Those are the two background pictures: one, alas, is broadly false; the other is true.

In an immensely perceptive speech, my right hon. Friend the Member for Charnwood (Mr. Dowell)—who, alas, cannot be present now—said that what is remarkable about this debate is the ability of the House of Commons to debate tax and spending without having to debate many of the matters that had to be debated during the 1970s and 1980s, and, indeed, during much of the 1990s. It is much to the credit of the Labour party that, to all intents and purposes, it has abandoned the ludicrous naivety of socialist command economies, and has made some progress. At least we can now have a rational debate about tax and spending, and that gives us, as a democracy, much to be grateful for.

What has come out of the debate about tax and spending, against the economic background that I have sketched? First, as I think the Government in all but name admit, there has been a persistent and considerable increase in tax—an increase by stealth. My hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley), who is a member of the Select Committee, told us of the 19 occasions on which he had tried to get the Chancellor of the Exchequer to admit the fact openly. I must warn my hon. Friend that, even if he makes the same point 190 or even 1,900 times, the Chancellor will never quite admit it. He cannot admit it, because the Prime Minister said that it would never happen, and it is well known in Labour party circles that when the Prime Minister has said that something will not happen, it cannot and must not happen. Consequently, the official Labour doctrine will be, and will go on being, that this has not happened; but, of course, no one will believe it, any more than they believe it now.

As my hon. Friend the Member for East Worthing and Shoreham made clear, we are dealing with something that defies any attempt at definitional dexterity. The fact is that, whatever definitions are used, tax has risen, and will have risen between one end of the current Parliament and the other. More important, perhaps—this may answer some of the points made by the hon. Member for Kingston and Surbiton (Mr. Davey), the Liberal Democrats' spokesman—our tax burden is not only higher than those of Ireland, Spain and Portugal, but, much more worryingly, much higher than those of the United States, Japan and Australia.

We shall have to compete increasingly with those countries given the existence of a new, open economy, in which people—human capital—will be the main commodity that we seek to attract and retain. When business is mobile, because it is knowledge based and hence people based, no one will be able to retain it in this country if they cannot provide a low-tax and low-regulation environment. If the Government do not believe that now, they will come to believe it when they discover, as all Governments do, that they have not actually abolished the economic cycle. They will come up against the problem that the fundamentals have been corroded by higher taxes, and they will find that we are not as competitive as they had hoped that we would be.

Another remarkable development is taking place. Given a vast increase in taxation—£40 million, according to the Government's arithmetic—we might have expected a huge accumulation of surplus; but, as was pointed out by my hon. Friend the Member for East Worthing and Shoreham, quite a modest amount of deficit reduction is going on. Indeed, in November—bizarrely, for reasons that I suspect puzzle the Chief Secretary as much as they puzzle me—there was a current budget deficit of about £2.9 billion.

We are talking about small differences between large numbers. They come and they go. However, the fact is that a fairly tight position is developing in comparison with what we would expect, with a huge fiscal drag and a movement towards trend rate of growth.

What is the cause of this bizarre phenomenon? Why have the Government been able—why, indeed, have they been able to demonstrate their ability so successfully—to raise taxes by stealth, without being able to repay vast amounts of national debt? Certainly, the reason is not spending on health or education. Let me put a nail in the coffin of a misleading statement that is frequently made in many places, not least—inadvertently, we hope—by some Labour Members.

We unequivocally support the increases in health and education spending. There is every reason for us to support those increases, which broadly parallel the increases that we introduced year after year. On the Chancellor's own plans, health spending will be increased by £9 billion a year—only £9 billion—between 1998–99 and 2001–02. That is just over, if over, the level of health inflation.

Many of the cases that my hon. Friends the Members for Guildford and for Chichester (Mr. Tyrie) and other hon. Members mentioned of structural deficiencies in delivery in the health service—the notorious waiting lists, and waiting lists for waiting lists—and of rising class sizes in many parts of education are due to the fact that the increase in spending is not that aggravated. We support the increase. It can be supported, and it could have been supported without that major tax increase. There is, therefore, quite another explanation.

Shona McIsaac

If the hon. Gentleman broadly supports the extra health spending, could he possibly explain why the shadow Chancellor described it as reckless?

Mr. Letwin

I really do not think that the hon. Lady will much advance debate by mis-attributing statements. My right hon. Friend the shadow Chancellor has clearly described the totality of spending as reckless—and, in a moment, I shall explain precisely why. I do not think that political debate should be conducted by pretending that people have said something that they have not said, as that will get no one anywhere.

My right hon. Friend the shadow Chancellor said: I said it last year and I say it again today. We support increases in health and education spending."—[Official Report, 9 November 1999; Vol. 337, c. 893.] What he thought was reckless, what I think is reckless, and what I rather think that the Prime Minister must think is reckless is the vast growth in social security spending, which is where the money has gone.

This brilliant Government came to power telling us—I do not quote some minor guru, but a person called the Prime Minister—that

By the end of a five-year term of a Labour Government: I vow that we will have reduced the proportion"— of national income that— we spend on the welfare bills of social failure…This is my covenant with the British people. Judge me upon it. The buck stops with me.

As if that was not enough, on 7 October 1996, the Prime Minister told Newsweek:

Our priorities should be to re-order public spending so that we're spending less on welfare and more on areas like education.

If that is the Prime Ministers' covenant, and if we are to judge him on it, he is to be judged a massive failure. Even stripping away the hype of any cumulative sums, between 1998–99 and 2001–02, there will have been an annual increase in social security spending of £15 billion, which is roughly three quarters as much as health and education spending together.

That has happened for the simple reason—which Ministers, if they are honest with themselves, perfectly well know—that the Government started with a brilliant, very sincere and profound man as Minister for Welfare Reform, and that he hopelessly failed to persuade the Chancellor of the Exchequer to let him do any of the things that he intended to do; and that the Government have utterly failed to attack the systemic problems in our social security budget. Ministers—and, alas, we as a country—will live to regret that.

Mr. Edward Davey

The hon. Gentleman is suggesting that the increased tax burden as a percentage of GDP has funded increased expenditure. However, the figures suggest that that is not true. In 1997–98, general government expenditure as a percentage of GDP was 39.1; in 1999–2000, it is 39.2. Therefore, the proceeds from any increase in tax burden has been spent on deficit reduction.

Mr. Letwin

Alas, no. As I was trying to explain, the extent of current fiscal laxity is demonstrated by the fact that—although the hon. Gentleman was quite right to say that there has been a minor reduction in the deficit and some money has been put away—in the economic cycle in those three years, as the economy has come out of recession and into growth, very little of the surplus has been used where it should have been used—to reduce debt—and a great and growing part of it is being used on social security expenditure. Moreover, that spending creates a ratchet.

If the hon. Member for Kingston and Surbiton ever found himself—of course, he will not—as Chief Secretary or Chancellor or in a similar office and thought that he could enter a period in which we approach the trend growth rate with current levels of debt repayment and ballooning social security payments and come out the other end—when the cycle hits him, and we move back into recession—without those spending commitments hitting him on the head, he would find himself sorely disillusioned, as many hon. Members in the Chamber who have been in those offices will very well know.

The situation is worse than I have so far described. It is not merely that we have the oddity of a great increase in tax, very little debt repayment and a great increase in social security spending—storing up trouble for the future. We face also a severe lack of transparency in the accounts and open government. That was what my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) went on about, as did my hon. Friends the Members for Chichester and for Bury St. Edmunds.

We have the Government Resources and Accounts Bill, which misses most of the major assets and liabilities. We have a refusal by the Government to accept the establishment of a national accounts commission that would set proper definitions. We have fiddled figures on the reclassification of the working families tax credit and a series of other things. The Red Book has reached a level of incomprehensibility that transcends even the miraculous mixed metaphors of which this Government are otherwise capable.

That is the Government's method of disguising from themselves the very deficiency to which I have pointed. The accounts are not bringing out—as the Treasury must, by now, have lost sight of their own accounts—the real truth, which is that there is no proper tackling of the systemic problem in social security. Until there is, the very structural deficiencies that I have outlined will continue.

The situation is worse than that. [HON. MEMBERS: "Oh!"] I am glad that there is an intake of breath by Labour Members. The truth is that the Government have presided over the most astonishing recreation of a growth in Government waste. I do not have to rely on fiddled figures or speculation—I can look at the Government's own publication. That document is the only one of the Government's productions that is to be commended. For some reason, Mr. Balls and the others in the Treasury who specialise in spinning these documents have failed to attend to it. Unlike the others, it contains tables that one can understand, and no one has yet managed to manipulate them.

The document shows total gross expenditure on civil departments' running costs. The remarkable thing is that, between 1993 and fiscal year 1997–98, the previous Government managed to contain those costs very well—to within about £100 million across the five years. The figures started and ended at £13 billion. The Government have so managed their own public affairs that they will increase the amount from £13.2 billion at the start to £14.7 billion, a rise of £1.5 billion across the period. What a miraculous achievement for a Government whose priorities are education, education, education, or, according to taste, trying to deal with education and health, or, according to taste, trying to reduce the public sector deficit. Not only have they spent money on social security, they have wasted it wholesale on administration.

That is why my right hon. and hon. Friends spent so long unearthing the £410 million of particular items of waste. However, that is just the beginning of the story. No one could claim that the Conservatives had eliminated all waste from public sector administration when we left government. However, this Government have added to it when it needs to be reduced dramatically.

We have a background of a relatively poorly performing economy—worse than most of our competitors—despite the inherent strengths. We have low growth in comparison with many of our competitors, against the background of a strong economic system—a golden economic legacy indeed—which the Labour party inherited. That is being corroded by high taxes and regulation to fund an explosion in social security payments which the Government are doing their best to hide from themselves and the rest of us through opaque accounting. It amounts to the Government storing up a mass of trouble for the future.

As competitiveness declines, as the IOUs mount, as the Government discover, to their horror, that all their blissful metaphor will not save them from the cycle that everyone else in the world always faces—and that they and the country, in due course, will face—they will find that the IOUs are called in.

I know why none of this worries the Chancellor. The reason is set out in a lapidary phrase that I would like Labour Front Benchers to attend to. A certain person said: In every pore and sinew Labour has shown its basic instinct to tax and tax again. Who said that? Yes, indeed, that was the new Labour Member for Witney (Mr. Woodward). I wish the Government joy of him.

6.35 pm

The Financial Secretary to the Treasury (Mr. Stephen Timms)

We have had an interesting debate. I enjoyed the speech made by the hon. Member for West Dorset (Mr. Letwin).

Our vision for the economy rests on the new foundation that we have built: the new platform of stability in our economy that is almost unprecedented in our history. That stability is all the more important and impressive given the state of the economy two and a half years ago and the massive deficit that was then a feature of it. The challenge now is to lock in that new stability for good so that we can build on it for the long term; and that is what we are determined to do.

That is the basis on which my right hon. Friend the Chancellor was able to set out last month, in his pre-Budget report, the Government's new ambitions for the coming decade: that we should make substantial progress in catching up on productivity with our major competitors after decades of slipping behind under the previous Government; that we should have a higher proportion of people in work than ever before—we already have the highest absolute number ever in work, which is a remarkable achievement, but our aim is for the highest proportion ever; that the number of children in poverty should be halved in the next decade, on the way to the ambition set by my right hon. Friend the Prime Minister of the abolition of child poverty within two decades; and that, for the first time, over half our school leavers should go on to study for a degree.

All those targets are achievable if we can lock in our new-found stability and build on it for the long term, as we are determined that we should. That determination underpins our programme and our goal of providing employment opportunity for all and a new hope for the future in a fair society, in which all the people have the chance to develop to their full potential and no one is left out.

That applies not only to people in Britain. Thanks to my right hon. Friend's historic announcement last week, there is new hope for people in the poorest countries in the world. I join my hon. Friend the Member for Stafford (Mr. Kidney) in commending the Churches, the charities and Jubilee 2000 for the way in which they have pursued their campaign.

The Tories made the classic error time and again over their 18 years in government of allowing short-term political considerations to dictate economic decision making, with Britain then paying the price. Borrowing in 1997 was still high, with the burden of public debt rising steeply and public investment scandalously neglected. The old familiar cycle of boom and bust reared its ugly head once again. What a contrast there is today—the public finances are back under control; public sector net borrowing has been cut by £30 billion in our first two years; and, unlike in the previous cycle, inflationary pressures have been contained and interest rates peaked lower and fell much faster after the peak. As has been said, our peak was the Tories' trough in inflation.

Last month, as well as our new ambitions, the pre-Budget report gave new projections for the economy and the public finances. Current surpluses totalling £58.5 billion are expected over the next five years, compared with a deficit over the previous economic cycle of £149 billion. Net borrowing is now estimated to be in surplus by £3.5 billion, with total net borrowing over the next five years lower than in any single year in the previous Parliament.

We are on track to meet our tough fiscal rules over the cycle, while at the same time investing an additional £40 billion in health and education over the next three years, plus the extra resources for schools, hospitals and safer communities announced in the Budget and the pre-Budget report.

We have been able to deliver all that as a result of our new macro-economic framework, with a new monetary policy framework giving the Bank of England responsibility for setting interest rates in the best long-term interests of the economy to meet the Government's symmetric inflation target, as commended by the hon. Member for Chichester (Mr. Tyrie). Giving the Bank of England responsibility for interest rates was opposed by the Conservative party, but a lot of hints were dropped in this debate. The right hon. Member for Charnwood (Mr. Dorrell) told us that the Opposition had set up a committee, which is a ruse to minimise the embarrassment caused by their change in policy. Indeed, several Conservative Members—such as the hon. Members for Chichester and for East Worthing and Shoreham (Mr. Loughton)—have already declared that they support our policy.

We need to remember what the Opposition said at the time of the change to independence, and more recently. The Leader of the Opposition said in October last year that the Government had given up control of interest rates when they should have kept hold of them. The shadow Chancellor said at the same time that the Conservatives would not have given up control of interest rates in the first place. However, the Tories may be about to have a major change of heart and support at last the Government's policy on the monetary policy framework, and we would welcome that.

I was interested in the evidence given by the right hon. and learned Member for Rushcliffe (Mr. Clarke)—the former Chancellor—to the Lords Select Committee on the Monetary Policy Committee of the Bank of England. He said that he was in favour of independence for central banks and even said: I have always been in favour in principle of an independent central bank and I would have pressed it further if I thought there was the slightest chance of persuading my colleagues in the last Government…that we should do that. If the Opposition have now changed their mind, we would welcome that.

Mr. Tyrie

A few facts are needed. When the idea of independence for the Bank of England first came to public notice in 1989, after Nigel Lawson's resignation, the Labour Opposition vigorously opposed it and continued to do so up to the last general election. Even during the election, the Labour party said that some time would need to elapse before it would introduce the policy. The Government then had their own Damascene conversion. Why?

Mr. Timms

I think that the hon. Gentleman is supporting what the Government have done, albeit in a roundabout way. We made it clear that we would take the steps necessary to achieve stability in the economy. We have done so with spectacular success. I welcome the belated support of Opposition Members and we hope that it will be formalised before too long.

The second element is a new public spending framework that will allow for long-term planning, remove the old Tory bias against investment, and focus on efficiency and outputs. We have heard much in this debate about the problems with investment in public services from which we suffered so much in the 18 years of Tory Government. The third element is a new fiscal policy framework with the five principles of transparency, efficiency, stability, responsibility and fairness, underpinned by the golden rule and the sustainable investment rule. Those rules will ensure that borrowing stays under firm control and require current taxpayers to pay for current spending. A stable and prudent debt ratio will ensure that fiscal policy is run responsibly and does not threaten the stability of the economy or impose an undue burden on future generations.

Mr. Letwin

The Financial Secretary mentioned the golden rule, but the Chief Secretary was unable to answer questions about what exactly it is, how long the cycle is, where we are in the cycle and when it will end.

Mr. Timms

The golden rule has been repeatedly published and I shall read it to the hon. Gentleman when I find it. It is widely supported as a big step forward. The hon. Member for Chichester said that no one attached any benefit to it, but that is wrong. As the pre-Budget report makes clear, the golden rule states—word for word—that over the economic cycle, the Government will borrow only to invest and not to fund current spending". That is the basis on which we are managing the economy and it is the right basis on which to manage the Government's finances. I hope that the Opposition will also change their position on that policy and support the changes we have made.

We are determined to go on making decisions for the long term. Tory short-termism brought instability to companies and caused uncertainty for taxpayers. Instead, this Government are creating a platform for economic stability that is the precondition for long-term economic success.

However, there is no room for the complacency of which we were accused earlier by a couple of Conservative Members. We remain alive to the risks involved in public finance. For that reason, we will not repeat the mistakes of the late 1980s and relax our grip in the way that I thought that the hon. Member for Kingston and Surbiton (Mr. Davey) was suggesting. We want to lock in economic stability and ensure that it endures for the long term.

The fiscal policy framework is being strengthened by our new way of planning and controlling public expenditure, which started with the comprehensive spending review last year. Departments now have firm, multi-year spending limits to prioritise resources and plan ahead. In that way, a stable foundation is provided for public services that they have never enjoyed in the past.

The new control regime allows underspends to be carried forward and spent on Government priorities, rather than forcing Departments to waste public money on the pointless end-of-year spending binges that characterised the Tory years. The clear distinction between capital spending and current spending ensures that worthwhile capital investment is not squeezed out by short-term pressures, as has happened in the past.

Our first spending review last year committed an additional £40 billion for improvements in health and education provision over three years—and it is supported, in an important U-turn, by the Tory amendment under consideration today. I welcome that change of heart, although the hon. Member for Chichester spoke against the increase in spending. Perhaps he had not had the chance to read the amendment.

It is also important to recall what Conservative Members said when the spending increases were announced. The Leader of the Opposition said that the Government had been "reckless" with spending when they should have been prudent, and the shadow Chancellor called the commitments "extremely irresponsible" and "reckless". I am therefore delighted that the Tory amendment supports the increases in health and education spending. That is an investment for the future, and it reflects our priorities—to build a modern Britain and a decent society, characterised by fairness and opportunity for all.

The spending review also announced a doubling of net investment in the public sector. That is especially welcome to a number of Labour Members, including my hon. Friends the Members for Stafford, for Luton, South (Ms Moran), and for Bexleyheath and Crayford (Mr. Beard). In their excellent contributions, they set out how they wanted more public investment in public services. The rise in net investment over this Parliament of 0.5 per cent. of gross domestic product compares with the fall of 1.5 per cent. over the previous Parliament that caused so many of the problems that we heard about in the debate. Gross investment will total nearly £30 billion a year by 2001–02.

Mr. Letwin

Does the Financial Secretary accept that much of the investment that he describes will be achieved through the private finance initiative, which the Chief Secretary lauded earlier? Does he also accept that the Government are sorely deficient in not accounting for the liabilities piling up under the private finance initiative?

Mr. Timms

Unlike the previous Government, this Government are making private finance work. I hope that the hon. Gentleman will welcome the fact that so many deals are now being done, and I shall set out the scale of those deals in a moment. I support the basis on which that initiative is being taken forward.

There is no doubt that the Government have solved the problems inherent in the application of private finance to public investment in a way that the previous Government conspicuously failed to achieve. We are providing the money to go with our commitments; that is putting in much-needed new resources for the fabric of our country. An extra £5 billion has come from private finance initiative deals since the election, and there will be £11 billion worth of deals over the next three years.

Prudence with a purpose is replacing the past imprudence without a purpose. It is spending with attitude. Our ambition is nothing less than for our services to be the envy of the world. To help our drive to improve performance, we have a range of new levers—league tables, inspections, targets, sanctions and rewards—to ensure that spending is investment in exchange for modernised services.

I want to respond to a number of the detailed points made in the debate. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) welcomed the way in which the real-terms increases in tobacco duty have been linked to health service spending. He made some interesting points about the way in which the health service should be funded in the future. I think that he, along with many others who have spoken in the debate, will welcome the substantial additional allocations for health authorities around the country announced today by my right hon. Friend the Secretary of State for Health.

My hon. Friend the Member for Wellingborough (Mr. Stinchcombe) pointed out the stark contrast between the economic failure of the past and the dramatic improvements of the past two and a half years. He illustrated that by referring to the changes in schools in his constituency—the better buildings, the repairs, the fact that there were more computers, smaller classes and new classrooms. All those improvements have been widely welcomed.

The hon. Member for Kingston and Surbiton had an interesting debate with the right hon. Member for Charnwood about tax competition. He was right to attack the Tory tax guarantee. It is surprising that in a debate when much was said about the burden of tax, Conservative Members said strikingly little about the Tory tax guarantee. Many of us would like to know rather more about that, or whether they share the views now expressed by my hon. Friend the Member for Witney (Mr. Woodward) about that guarantee. [HON. MEMBERS: "Who?"]

The hon. Member for Kingston and Surbiton was touchingly naive about his party's influence on Government policy, although he made some interesting observations. We are not going to spend money before we have it—that is exactly the mistake that was made by the previous Government. They came up with optimistic views about future growth, as the hon. Gentleman invited us to do, and the result was boom and bust. We are not going down that road again.

Mr. Howard Flight (Arundel and South Downs)

Could the Minister kindly tell us what is the cycle to which the golden rule applies? Where do the Government assess our present position to be in the economic cycle? Surely they do not believe that the economic cycle has disappeared.

Mr. Timms

We are at a point in the cycle where growth is increasing. It was only at the last Budget that Conservative Members informed us that we were about to head into a deep recession, but they were wrong. Every forecast that they have made has been wrong. They will not be trusted on the economy again.

My hon. Friend the Member for Cleethorpes (Shona McIsaac) talked about the threats under the previous Government to her local hospital and contrasted that with improvements in her area today. Her area, like every other, benefits from the huge investment programme in the health service—the biggest hospital building programme ever in the NHS. My hon. Friend also spoke about improvements for pensioners and the contrast with the way in which the previous Government treated them.

The hon. Member for Chichester helpfully acknowledged that mistakes were made by the previous Government. They certainly were. He was right to praise the national health service as a remarkable institution. We will safeguard it and work to keep it up to date and improve it. I was surprised by the hon. Gentleman's attack on literacy and numeracy hours, because they have been hugely effective in raising primary school standards. He seemed more concerned about stability in the chapter headings in the Red Book than about economic stability, but that is one of our central concerns.

My hon. Friend the Member for Luton, South made telling points about the need for investment in housing. She was right to draw attention to the dilapidation in Britain's fabric, and we are turning attention to it. We need new applications of the PFI, and housing policy will be addressed by a forthcoming Green Paper. My hon. Friend the Member for Bexleyheath and Crayford made a characteristically thoughtful and succinct speech. The whole House enjoyed it and Conservative Members were right to pay tribute to him. He made telling remarks about the paucity of investment in public infrastructure in the past. He explained how fiscal rules and the new Government Resources and Accounts Bill will help. Public-private partnerships are needed to achieve change on the scale that we need. I agree with him on the importance of maintaining a vested interest in public assets.

The hon. Member for East Worthing and Shoreham was right to say that the economy is healthy. I assure him that there is no complacency on our part about the future. He was also right to call for responsibility on pay rises. My hon. Friend the Member for Stafford drew attention to the way in which the Government have, in a very short time, turned a large deficit into a surplus. He was right to warn against complacency, and I note what he had to say about the public sector borrowing requirement and its alternative definitions. He will welcome removal of the bias in the system against capital investment.

I was sorry to hear the hon. Member for Guildford (Mr. St. Aubyn) express such a low opinion of the quality of care in his local hospital. I used always to be both intrigued and puzzled by the unique way in which health service funding arrangements applied to health authorities in Surrey under the previous Government. If he gave those arrangements some close attention, he would find that it would repay his efforts.

Mr. St. Aubyn

Will the Minister give way?

Mr. Timms

No.

My hon. Friend the Member for Staffordshire, Moorlands (Charlotte Atkins) discussed the impressive achievements of her local schools and made an interesting point about the link between ICL and the local technical school of excellence. She told us how that link was feeding into investment in new jobs in her area.

Two and a half years ago, the Government were elected on a crescendo of hope and optimism unprecedented for a generation. The remarkable fact is that those hopes burn even brighter tonight than they did when we were elected. Not only have those hopes not been dashed as the honeymoon came abruptly to an end—as has happened so often over the past 20 years—but they are even stronger than they were when we began. Two and a half years have passed, but, as we have discovered during only the past week, new constituencies are swinging round to support the Government for the first time. The reason for that is that the Government have delivered.

As the millennium draws to a close for the House of Commons tonight, a new faith is abroad in politics—a new conviction that the old cynicism was not necessary and that we can change things for the better in our nation and in our time. Our ambitions, which all our communities share, are for enterprise and fairness and for a decent and modern Britain. Our new ambitions are that Britain should catch up with our competitors, that child poverty should be brought to an end, that school leavers should study for degrees and that we should have full employment. Those ambitions are shared across the nation. They are not hopeless pipe dreams, but are backed by programmes that will deliver them. As the old millennium draws to a close, we shall deliver a vision of jubilee, of the cancellation of debt and of the dawn of new hope in a new millennium for the poorest people in the world. The Government lead by example.

Mr. Patrick McLoughlin (West Derbyshire)

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put, That the amendment be made:—

The House divided: Ayes 125, Noes 306.

Division No. 23]	[7 pm
AYES
Ainsworth, Peter (E Surrey)	Grieve, Dominic
Amess, David	Gummer, Rt Hon John
Ancram, Rt Hon Michael	Hague, Rt Hon William
Arbuthnot, Rt Hon James	Hamilton, Rt Hon Sir Archie
Atkinson, David (Bour'mth E)	Hawkins, Nick
Atkinson, Peter (Hexham)	Heald, Oliver
Beresford, Sir Paul	Heathcoat—Amory, Rt Hon David
Blunt, Crispin	Heseltine, Rt Hon Michael
Body, Sir Richard	Hogg, Rt Hon Douglas
Boswell, Tim	Horam, John
Bottomley, Peter (Worthing W)	Howard, Rt Hon Michael
Bottomley, Rt Hon Mrs Virginia	Howarth, Gerald (Aldershot)
Brady, Graham	Hunter, Andrew
Brazier, Julian	Jack, Rt Hon Michael
Brooke, Rt Hon Peter	Jackson, Robert (Wantage)
Browning, Mrs Angela	Jenkin, Bernard
Burns, Simon	Key, Robert
Butterfill, John	King, Rt Hon Tom (Bridgwater)
Cash, William	Laing, Mrs Eleanor
Chope, Christopher	Lansley, Andrew
Clappison, James	Leigh, Edward
Collins, Tim	Letwin, Oliver
Colvin, Michael	Lewis, Dr Julian (New Forest E)
Cormack, Sir Patrick	Lidington, David
Cran, James	Lilley, Rt Hon Peter
Curry, Rt Hon David	Lloyd, Rt Hon Sir Peter (Fareham)
Davies, Quentin (Grantham)	Loughton, Tim
Davis, Rt Hon David (Haltemprice & Howden)	Luff, Peter
	Lyell, Rt Hon Sir Nicholas
Day, Stephen	MacGregor, Rt Hon John
Duncan, Alan	McIntosh, Miss Anne
Duncan Smith, Iain	Maclean, Rt Hon David
Evans, Nigel	McLoughlin, Patrick
Faber, David	Madel, Sir David
Fabricant, Michael	Malins, Humfrey
Fallon, Michael	Maples, John
Flight, Howard	Maude, Rt Hon Francis
Fraser, Christopher	Mawhinney, Rt Hon Sir Brian
Gale, Roger	May, Mrs Theresa
Garnier, Edward	Nicholls, Patrick
Gibb, Nick	Norman, Archie
Gill, Christopher	O'Brien, Stephen (Eddisbury)
Gray, James	Ottaway, Richard
Greenway, John	Page, Richard

Paterson, Owen	Swayne, Desmond
Pickles, Eric	Syms, Robert
Portillo, Rt Hon Michael	Taylor, John M (Solihull)
Prior, David	Taylor, Sir Teddy
Randall, John	Tredinnick, David
Redwood, Rt Hon John	Trend, Michael
Robathan, Andrew	Tyrie, Andrew
Robertson, Laurence	Viggers, Peter
Roe, Mrs Marion (Broxbourne)	Wardle, Charles
Ruffley, David	Waterson, Nigel
St Aubyn, Nick	Whittingdale, John
Sayeed, Jonathan	Widdecombe, Rt Hon Miss Ann
Shephard, Rt Hon Mrs Gillian	Wilkinson, John
Shepherd, Richard	Willetts, David
Simpson, Keith (Mid-Norfolk)	Wilshire, David
Soames, Nicholas	Yeo, Tim
Spicer, Sir Michael	Young, Rt Hon Sir George
Spring, Richard
Stanley, Rt Hon Sir John	Tellers for the Ayes:
Steen, Anthony	Mrs. Jacqui Lait and
Streeter, Gary	Mr. Geoffrey Clifton-Brown.

NOES
Abbott, Ms Diane	Clelland, David
Adams, Mrs Irene (Paisley N)	Clwyd, Ann
Ainsworth, Robert (Cov'try NE)	Coaker, Vernon
Alexander, Douglas	Coffey, Ms Ann
Allen, Graham	Cohen, Harry
Anderson, Donald (Swansea E)	Coleman, Iain
Anderson, Janet (Rossendale)	Colman, Tony
Armstrong, Rt Hon Ms Hilary	Cook, Frank (Stockton N)
Ashton, Joe	Cooper, Yvette
Atkins, Charlotte	Corbett, Robin
Austin, John	Corbyn, Jeremy
Banks, Tony	Cousins, Jim
Barnes, Harry	Cox, Tom
Barron, Kevin	Cranston, Ross
Bayley, Hugh	Crausby, David
Beard, Nigel	Cryer, John (Hornchurch)
Beckett, Rt Hon Mrs Margaret	Curtis-Thomas, Mrs Claire
Bell, Stuart (Middlesbrough)	Dalyell, Tam
Benn, Hilary (Leeds C)	Darling, Rt Hon Alistair
Bennett, Andrew F	Darvill, Keith
Benton, Joe	Davey, Edward (Kingston)
Bermingham, Gerald	Davey, Valerie (Bristol W)
Berry, Roger	Davidson, Ian
Best, Harold	Davies, Rt Hon Denzil (Llanelli)
Blackman, Liz	Davies, Geraint (Croydon C)
Blair, Rt Hon Tony	Davis, Rt Hon Terry (B'ham Hodge H)
Blears, Ms Hazel
Blizzard, Bob	Dawson, Hilton
Boateng, Rt Hon Paul	Dean, Mrs Janet
Borrow, David	Denham, John
Bradley, Keith (Withington)	Dismore, Andrew
Bradley, Peter (The Wrekin)	Dobbin, Jim
Bradshaw, Ben	Doran, Frank
Brinton, Mrs Helen	Dowd, Jim
Brown, Rt Hon Nick (Newcastle E)	Drew, David
Burden, Richard	Dunwoody, Mrs Gwyneth
Butler, Mrs Christine	Eagle, Angela (Wallasey)
Campbell, Alan (Tynemouth)	Eagle, Maria (L'pool Garston)
Campbell, Ronnie (Blyth V)	Edwards, Huw
Campbell-Savours, Dale	Efford, Clive
Cann, Jamie	Ennis, Jeff
Caplin, Ivor	Etherington, Bill
Casale, Roger	Field, Rt Hon Frank
Caton, Martin	Fisher, Mark
Cawsey, Ian	Fitzpatrick, Jim
Chapman, Ben (Wirral S)	Fitzsimons, Lorna
Chaytor, David	Flint, Caroline
Clapham, Michael	Flynn, Paul
Clark, Rt Hon Dr David (S Shields)	Follett, Barbara
Clark, Paul (Gillingham)	Foster, Rt Hon Derek
Clarke, Charles (Norwich S)	Foster, Michael Jabez (Hastings)
Clarke, Rt Hon Tom (Coatbridge)	Foster, Michael J (Worcester)
Clarke, Tony (Northampton S)	Foulkes, George

Fyfe, Maria	Lock, David
Gardiner, Barry	Love, Andrew
George, Bruce (Walsall S)	McAvoy, Thomas
Gerrard, Neil	McCabe, Steve
Gibson, Dr Ian	McCartney, Rt Hon Ian (Makerfield)
Gilroy, Mrs Linda
Godman, Dr Norman A	McDonnell, John
Godsiff, Roger	McGuire, Mrs Anne
Goggins, Paul	McIsaac, Shona
Golding, Mrs Llin	McKenna, Mrs Rosemary
Gordon, Mrs Eileen	McNamara, Kevin
Griffiths, Jane (Reading E)	McNulty, Tony
Griffiths, Win (Bridgend)	MacShane, Denis
Grocott, Bruce	Mactaggart, Fiona
Grogan, John	McWilliam, John
Hain, Peter	Mahon, Mrs Alice
Hall, Mike (Weaver Vale)	Mallaber, Judy
Hall, Patrick (Bedford)	Marsden, Gordon (Blackpool S)
Hamilton, Fabian (Leeds NE)	Marsden, Paul (Shrewsbury)
Hanson, David	Marshall, David (Shettleston)
Heal, Mrs Sylvia	Marshall-Andrews, Robert
Henderson, Doug (Newcastle N)	Meacher, Rt Hon Michael
Henderson, Ivan (Harwich)	Merron, Gillian
Hepburn, Stephen	Michie, Bill (Shef'ld Heeley)
Hesford, Stephen	Milburn, Rt Hon Alan
Hewitt, Ms Patricia	Miller, Andrew
Hill, Keith	Moffatt, Laura
Hodge, Ms Margaret	Moran, Ms Margaret
Hoey, Kate	Morgan, Ms Julie (Cardiff N)
Hope, Phil	Morgan, Rhodri (Cardiff W)
Hopkins, Kelvin	Morley, Elliot
Howarth, George (Knowsley N)	Mountford, Kali
Howells, Dr Kim	Mudie, George
Hughes, Ms Beverley (Stretford)	Mullin, Chris
Hurst, Alan	Murphy, Denis (Wansbeck)
Hutton, John	Naysmith, Dr Doug
Iddon, Dr Brian	Norris, Dan
Illsley, Eric	O'Brien, Bill (Normanton)
Jamieson, David	O'Brien, Mike (N Warks)
Johnson, Alan (Hull W & Hessle)	O'Hara, Eddie
Johnson, Miss Melanie (Welwyn Hatfield)	Olner, Bill
	Öpik, Lembit
Jones, Rt Hon Barry (Alyn)	Organ, Mrs Diana
Jones, Jon Owen (Cardiff C)	Osborne, Ms Sandra
Jones, Dr Lynne (Selly Oak)	Palmer, Dr Nick
Jowell, Rt Hon Ms Tessa	Pearson, Ian
Kaufman, Rt Hon Gerald	Pendry, Tom
Keeble, Ms Sally	Perham, Ms Linda
Keen, Alan (Feltham & Heston)	Pickthall, Colin
Kemp, Fraser	Pike, Peter L
Kennedy, Rt Hon Charles (Ross Skye & Inverness W)	Plaskitt, James
	Pollard, Kerry
Kennedy, Jane (Wavertree)	Pond, Chris
Khabra, Piara S	Pope, Greg
Kidney, David	Pound, Stephen
King, Andy (Rugby & Kenilworth)	Powell, Sir Raymond
King, Ms Oona (Bethnal Green)	Prentice, Ms Bridget (Lewisham E)
Kumar, Dr Ashok	Prentice, Gordon (Pendle)
Ladyman, Dr Stephen	Prescott, Rt Hon John
Lawrence, Mrs Jackie	Primarolo, Dawn
Laxton, Bob	Prosser, Gwyn
Lepper, David	Purchase, Ken
Levitt, Tom	Quin, Rt Hon Ms Joyce
Lewis, Ivan (Bury S)	Radice, Rt Hon Giles
Lewis, Terry (Worsley)	Raynsford, Nick
Livingstone, Ken	Roche, Mrs Barbara
Livsey, Richard	Rogers, Allan
Lloyd, Tony (Manchester C)	Rooker, Rt Hon Jeff

Ross, Ernie (Dundee W)	Taylor, Rt Hon Mrs Ann (Dewsbury)
Rowlands, Ted
Roy, Frank	Taylor, Ms Dari (Stockton S)
Ruane, Chris	Taylor, David (NW Leics)
Ruddock, Joan	Taylor, Matthew (Truro)
Russell, Bob (Colchester)	Temple-Morris, Peter
Russell, Ms Christine (Chester)	Thomas, Gareth (Clwyd W)
Ryan, Ms Joan	Thomas, Gareth R (Harrow W)
Salter, Martin	Timms, Stephen
Sanders, Adrian	Tipping, Paddy
Savidge, Malcolm	Todd, Mark
Sawford, Phil	Touhig, Don
Sedgemore, Brian	Trickett, Jon
Shaw, Jonathan	Turner, Dennis (Wolverh'ton SE)
Sheerman, Barry	Turner, Dr George (NW Norfolk)
Sheldon, Rt Hon Robert	Twigg, Stephen (Enfield)
Shipley, Ms Debra	Vis, Dr Rudi
Singh, Marsha	Walley, Ms Joan
Smith, Rt Hon Andrew (Oxford E)	Ward, Ms Claire
Smith, Rt Hon Chris (Islington S)	Wareing, Robert N
Smith, Jacqui (Redditch)	White, Brian
Smith, John (Glamorgan)	Whitehead, Dr Alan
Smith, Llew (Blaenau Gwent)	Williams, Rt Hon Alan (Swansea W)
Snape, Peter
Soley, Clive	Williams, Alan W (E Carmarthen)
Spellar, John	Williams, Mrs Betty (Conwy)
Starkey, Dr Phyllis	Winnick, David
Steinberg, Gerry	Winterton, Ms Rosie (Doncaster C)
Stevenson, George	Wood, Mike
Stewart, Ian (Eccles)	Woolas, Phil
Stinchcombe, Paul	Worthington, Tony
Stoate, Dr Howard	Wright, Anthony D (Gt Yarmouth)
Strang, Rt Hon Dr Gavin	Wright, Dr Tony (Cannock)
Straw, Rt Hon Jack
Stringer, Graham	Tellers for the Noes:
Stuart, Ms Gisela	Mr. Kevin Hughes and
Sutcliffe, Gerry	Mr. Clive Betts.

Question accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House welcomes the action taken by this Government to build a platform of stability for the British economy, in contrast to the boom and bust of the past; welcomes the new monetary policy framework put in place by this Government, which is delivering stability and steady growth; notes that the Conservative Party opposes Bank of England independence; welcomes the new public spending framework which is delivering an additional £40 billion for health and education; notes that the Conservative Party is opposed to this extra investment; welcomes the fact that this Government is doubling public sector net investment after so many years of neglect; welcomes this Government's programme of reform in the public services and thanks public and voluntary sector workers for their contribution to delivering strong public services for all.

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1. GOVERNMENT RESOURCES AND ACCOUNTS BILL 39 words
cc771-6
2. Mortgage Debt Recovery 3,182 words